You don’t have to go very long in a modern business school to hear about the ’80/20′ rule, or more formally, a ‘Pareto Analysis’. For those not familiar, as a general rule of thumb, 80% of ______ is caused by 20% of the _____. 80% of your profits will be from 20% of your customers; 20% of your staff with generate 80% of your headaches; you’ll complete 80% of your work in 20% of your day; and so on and so on. For the more pedantic among us, both the 80 and the 20 are approximate – maybe in actually 18% of your customers generating 83% of your profit – but it’s a rule of thumb, not an immutable law. Individual mileage will vary slightly. While not perfect, it is enlightening: why does so much of our pain or pleasure come from such a small population? And how can we use this information to tip the ratio to more pleasure, less pain (unless you’re into that sort of thing, i’m not here to judge)?

Well, you can go review the numerous books on the math behind it if you’re curious as to why; I’m here to talk about how to use it.

Let’s make 2 statements about a business, based on the 80-20 rule:

  • 80% of revenue (or profit if you’d prefer) comes from 20% of your customers
  • 80% of your client problems (headaches) will come from 20% of your customers

If you sell a variety of products, you might add ‘80% of your profits come from 20% of your products’ as well, but for simplicity, i’m going to leave it out for the moment.

So the first thing to note, that may not be immediately obvious: The 20% of customers generating the 80% of your profit are probably not the same 20% causing the 80% of your headaches. This is very significant, and in most businesses, it is very true. Think about it: your pain in the ass clients are almost never your most profitable. In fact, a lot of the time, their the least: fighting for every nickle and dime on their invoice, constantly having you false start on non-existent sales or projects, usually going against your advice and purchasing substantially less then your recommend to achieve their goals, etc. Who makes up that 80% profit group? Usually it’s some of your easiest clients! The ones you love working with, where everything always seems magically easy – why can’t all your clients be like that?

I want to quickly add a caveat about ‘bad’ clients: namely, that they’re not ‘bad’, just a bad fit. The overwhelming majority of the time, they aren’t malicious, evil or just trying to frustrate you; they just need something different than what you provide, and that’s ok. You can’t be everything to everyone, you can’t hit every price point and service level, you can’t offer every product under the sun (no matter how Amazon.com tries!) – so become comfortable with the fact that not all potential business is the right business. Moving on…

So back to those less than desirable clients – why do you have them? Were they a deal that you needed a little too badly to meet a goal? Are they clients you’ve had forever, even though you now do something substantially different then ‘forever’ ago? Were they referred, or a friend, or a cousin, or some other personal recommendation that made you move past the poor fit to begin with? However it was, you should think about whether you want to keep having to ‘deal’ with all the extra effort to maintain them as clients – we’ve already realized they aren’t your most profitable customers (in fact, they’re often the least!). What do you do with these clients?

In web development, for those connected into the industry, there is sort of a waterfall methodology for dealing with clients like that: when you’ve outgrown a client, you generally pass them off to another developer that is a better fit. Some of my best clients have to come me because my more experienced developer friends decided they wanted to work on a different technology or different client type, and conversely, i’ve given some very nice contracts to more inexperienced developers when I’ve come across a client that I can’t service – some companies have the budget for a master level developer, some for intern level, but the important part is that you’re the level they need. When I come across a client that isn’t in my sweet spot, even if it hurts in the short term, I will pass, or at least, severely limit the scope of our work together to make sure expectations line up properly.

Odds are, you’re not a web developer, but you still probably have opportunities within your industry to pass clients off that aren’t a good fit. The short term hit my sting a little, but long term, you’ll have fewer headaches, and with a little luck (or karma if you’re into it), it’ll come back around when someone drops a great client in your lap because they were a poor fit with someone you know.