A founder cut 20% of his clients at a $2.5 million monthly revenue company by calculating profit-and-loss for each one. He fired the unprofitable ones and renegotiated with those barely breaking even. Revenue is a vanity metric; profit is what matters.
One of my companies was doing about two and a half million dollars a month, and I decided to fire 20% of my clients because I wrote out everything, because I was spread really, really thin. And we had to make a decision. Do we massively scale up higher over infrastructure and hope that we can grow into it, or do we just have a look at the clients that are actually making us money and not making us money? So I sat down and listed out all the expenses and everything for every single company, got the PNLs together and had a look at all the clients that we had. And then I took every single client that was not at the profit level that I had dict required. And then the ones that were grossly under, I fired. And the ones that were close to it, I renegotiated the deal. This is an essential thing. The 8020 rule is real. 80% of your revenue will come from 20% of your clients. And so I don't like that. It's too much risk. So I like to be more spread out than that. But you will have clients that are tremendously demanding and actually losing you money when you have a look at it. And you have to not look at that revenue number as anything but the revenue number. Revenue means nothing. It's a useless, ridiculous metric. Profit is more important. So use the 8020 rule. Have a look at the clients. Have a look at the people in your business. Are there people that are just dropping below the line of acceptable profitability or acceptable return and just get rid of them because it's just a pretend business at that point?
