The customer who costs you more than they pay

Quick answer: Add up the hours a customer really takes, multiply by what an hour of your time costs you, and subtract it from what they pay. If the number's negative, you have three moves: reprice, rescope, or release. Pick one within thirty days.

Say you run a small bookkeeping shop. One client pays $500 a month for four hours of work. That's the contract.

Here's the real month. Eleven hours. Three phone calls that each ran forty minutes. A text at 9:15 p.m. about a transaction from last March. A report you built twice because the first version "wasn't what I pictured." Two hours chasing receipts he promised by the fifth.

Eleven hours for $500 is about $45 an hour. If an hour of your time costs you $60, you paid $160 for the privilege of serving him this month. On paper he's one of your top five accounts. In reality you're subsidizing him.

Most owners know what each customer pays. Almost none know what each customer costs.

Start with your real hourly cost

Don't guess, and don't use your billing rate. Take what the role costs you in a year: salary or the pay you'd have to give yourself, payroll taxes, software, insurance, the share of rent and overhead. Divide by the hours actually worked, not 2,080. Nobody works 2,080 billable hours. Meetings, email, and fixing mistakes eat a real chunk.

Your accountant can help you get this number right, and it's worth the hour. Once you have it, write it on a sticky note. Every decision in this piece runs through it.

Find the suspects

Don't audit everybody. Start with a gut check: whose name on your caller ID makes your shoulders tighten? Who gets a faster answer from you because the alternative is worse? Who has a "special arrangement" nobody remembers agreeing to?

Make a list of five to ten. Then, for one month, track the time on each. A tally on a legal pad works. If you've already got a habit of looking at your numbers weekly, this is one more column on your one page.

Count everything, not only the phone calls

Time is the big one, but it's not the only one. Add up:

• Rework. Every redo is unpaid labor.
• Out-of-scope requests you said yes to because it was easier than saying no.
• Discounts and credits you've handed out to keep the peace.
• Slow payment. Money you're floating for sixty days has a cost, and chasing it takes hours. Most late invoices are a process problem, but a few customers are a habit, and a habit is a cost.
• Special terms: custom invoicing, odd delivery windows, exceptions to your own policy.
• What it does to your people.

That last one doesn't show up on any spreadsheet. Somebody on your team is the one who picks up when this customer calls. They've gone quiet about it. Maybe they've started dreading Tuesdays. You hired them to do good work for good customers, and you've got them absorbing a tantrum so you don't have to. If you're the boss, that's your job to take back.

Three moves

1. Reprice. If the work is fair and the customer is basically decent, just not at this price, raise the price to match the real cost. In the example, the client needs to pay roughly $660 for eleven hours at $60. Call it $700 and put a clean number on it.

Give thirty days' notice in writing. Say it plainly: "My costs on your account have grown, so starting the first, the fee is $700." No apology, no speech. Some will pay. Some will leave. Both outcomes are fine. If you want help with the tone of that conversation, selling without the sales voice covers it.

2. Rescope. Often the customer isn't the problem. The agreement is. "Four hours a month" never said anything about 9 p.m. texts. Write down what's included, how and when you respond, and what extra costs. A flat fee for the base work and an hourly rate for everything beyond it fixes more of these than any firm talking-to.

Then enforce it. The first time he asks for something outside scope, say, "Happy to. That's two hours at $90, want me to go ahead?" Say it kindly. Say it every time. A boundary you enforce once in a while is just a mood.

3. Release. Some customers won't pay a fair price and won't respect a fair scope. They'll call you to haggle over the new fee and then call again about something else. You can't fix that with a better contract.

Let them go, and do it right. Give thirty days. Finish everything you owe them. Refund anything prepaid. Hand over their records in order. If you know another firm that might suit them, say so. Don't list their faults, and don't gloat after. You're not punishing anybody, just ending an arrangement that doesn't work for either side.

Leave it cleaner than you found it. They'll tell people how you handled it, and it may be the best thing they ever say about you.

When a losing customer is still worth keeping

Concede this one: not every money-losing account should go.

• A brand-new business may take a thin margin from a marquee client to get its first reference. Fine, but set an end date and write it down.
• A customer who loses you $40 a month but sends you two good referrals a year is probably a bargain.
• A long-time customer who hit a rough patch deserves some grace. Putting others first means that. But grace has a time limit, or it just becomes a pattern.

The test is whether you chose it. A discount you picked on purpose is a marketing expense. A discount you drifted into because you couldn't say no is a leak.

Do the check once a quarter

Put it on the calendar, not in your head. Ninety minutes each quarter: list your top twenty customers, pull what each paid, estimate the hours each took, and look at the ones at the bottom. You'll find one or two. You'll also find the customers who pay fairly and respect your time, and you'll probably realize you've been giving them less attention than the loud ones. Fix that too. Your best customers are subsidizing your worst, and the good ones can tell.

Loyalty to a customer is a virtue. Subsidizing one forever isn't. You owe every customer honest work at an honest price. You don't owe anyone your Sunday night.