How does the 80/20 rule apply to the employee benefit business? With most businesses, ours included, we derive 80% of our revenue from 20% of our clients. If that is an accurate assessment, why dont we focus on finding more of the 20% type clients?
Frequently, we dont take the time to analyze the characteristics of the 20%. Part of the exercise is purely financial. Which clients develop the greatest revenue? This superficial analysis does not accurately reflect the profitability of a client. In simplistic terms, the profitability of a client is determined by the revenue it generates less the expenses associated with managing the client, i.e. staff, overhead etc. The true cost can be measured in a variety of ways. I would suggest there is a more meaningful calculation that needs to take place. What is the emotional cost to you and your team to manage a dysfunctional client? This can be measured at the ownership, sales executive and the account management team levels. Im hopeful none of you have or have ever had any of these types of clients but, I know you have.
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What are the characteristics of these dysfunctional clients? They could have an ineffective leadership team. Perhaps there is inadequate depth or experience in the HR department. They dont respond to your calls or emails on a timely basis and its only when they need something (usually in panic mode) that they call and expect you to perform in an inappropriate timeframe. They tend to make you and your team crazed. You are treated like a vendor rather than a strategic partner.
So what is the real cost of maintaining these dysfunctional relationships? I would suggest your overall bottom-line would be improved by not hiring, and perhaps, firing some of these clients. I believe your employee retention would improve and you would have a more pleasant work environment. This would result in an improved emotional and financial bottom line.
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So what is the takeaway? You and your team should build your ideal client profile. This could be based on your existing clients that are not only financially profitable but are enjoyable to work with. Perhaps you dont have an ideal client. In that case, you would need to create the characteristics of the ideal client.
Forget the 80/20 rule. Lets deploy the 100% rule. We should strive for 100% of our clients being financially and emotionally rewarding. Only you can control this outcome.
Torelli is an EBA Advisory Board member and area senior vice president at Arthur J. Gallagher & Co. Reach him email@example.com.
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