We Can't Afford Every Client

 We Can't Afford Every Client - Lessons Learned, episode 58

 Once I started turning almost all work over to technicians, I quickly saw an “established” bad practice that needed to change. Here’s how I noticed it and  how I addressed it.

When I started my business, I made the same error that almost all new consultants make: I did not place enough value on my time. I don’t mean the amount of money I charged so much as how I chose to use my precious hours. And perhaps back then I would not have called them precious. Now I treat them like rare gems.

I made a profit on all jobs (with rare exceptions), but some jobs should not have been done. Specifically, there were jobs that seemed profitable because my time didn’t “cost” me anything. Even then, I knew that I probably wouldn’t be able to do these jobs if I had to pay a technician.

A great example is (unfortunately for me) one of my favorite clients. They ran a feed store a few  towns away, up the foothills toward Tahoe. At first they were undeniably profitable. They had a big problem that was driving them crazy. That got my foot in the door. While there, my network assessment exposed a server that was choking and a backup that hadn’t worked in more than two years. On top of that, their point of sale systems were in the feed barn. In other words, a barn with cash registers. This is just about the dustiest environment you could imagine.

All of which is to say, we started doing regularly monthly maintenance. At first, we a lot of fix-up and clean-up work. Then it settled down to about 30 minutes per month to check server, network, and basic stuff, and 30 minutes to clean up the POS machines. [Literally. We opened them up and vacuumed them out because there was so much dust.] Total onsite = one hour.

Again, when I was doing this, I’d head out late morning so I could take care of the client and then eat lunch in this cute little town in the foothills. It took about 45 minutes to drive each way.

Then I started sending technicians. I don’t remember the exact fully burdened rate, but let’s call it $60/hour. Drive time is 1.5 hours and service labor is 1.0 hours. That’s 2.5 x $60 = $150. We didn’t charge for drive time (one of the few things I would change if I went back to the beginning.)

We charged the client for on hour onsite at $150/hr. Zero profit. But if that tech was driving around Sacramento, we might have had 30 minutes drive time in those 2.5 hours and billed two hours of labor, putting us ahead by $150.

We got into this situation because I used to make the mistake of believing that my time cost nothing. There’s the cost out of pocket and the cost of NOT doing another job that pays better.

Serving Out-of-Towners

That client was an outlier (literally) on the mountain side of the valley. In the other direction is the Bay Area. We had clients down in the Delta (where the Sacramento empties into the Delta on the way to the Pacific). We also had clients closer to Oakland. The Delta was closer but on tiny winding roads. The Bay Area clients were about eighty miles, which might take 90 minutes or might take four hours to drive.

Eventually, we drew a line to represent about 30 minutes drive time. We did not charge for travel inside that area. For outlying areas, we set a four hour minimum. That way we were pretty much guaranteed to be profitable.

We gently passed off the feed store to another consultant in our SMB IT user group. The Bay Area folks didn’t bat an eye. At the time, this was a $600 minimum, so I was surprised. But we didn’t hear a peep or complaint out of them. To be honest, I was quite shocked.

From time to time we culled clients because they were too small and didn’t meet our minimums. And once we set the four hour minimum for out of towners, we never had a client who was unprofitable again. Really.

Lesson Learned: The owner’s time is valuable. Especially if the owner’s primary responsibilities are sales and client relationships, that’s the most valuable time in your company. When calculating jobs, assume you’re a well-paid technician and make sure the job still looks profitable. You can’t give away your time.

 Feedback always welcome.

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 Episode 58

This Episode is part of the ongoing Lessons Learned series. For all the information, and an index of Lessons Learned episodes, go to the Lessons Learned Page. 

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