Why keep a client that’s not profitable?

Pomerene Let’s look at product management for inspiration. Let’s say we are making widgets. If our cost for making the widgets is higher than the price we can sell them for, would it make sense to keep making the widgets? I think not!

Then why are we doing this in the consulting world?

We sometimes have clients who generate so much non-billable time that it eats up all the profit from the billable time we charge them. And yet, we keep those clients. Why? Could it be because we don’t know the client is costing us money?

We need to connect our costs to our clients. At the very least, we should record when we work for a client, even if it’s non-billable time. At the end of the year, we’ll be able to see if the billings for that client covered our costs, including that of non-billable time. If a client consumes a lot of non-billable technical support time, for example, then we can adjust the billable rate for that client for the coming year to compensate for the non-billable costs associated with a client.

Too often we only look at the billable work done for the client. This gives a biased outlook on the client’s profitability. If we include hidden costs such as non-billable work done for the client, then we paint a more accurate picture of that client’s contribution to the firm’s success.

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