A customer who negotiates a low fee is not automatically a bad customer. A well-organised client with predictable work can be profitable at a modest price. The expensive customer is often the one whose fee covers the visible task but not everything attached to it.
That distinction matters. Otherwise “our cheapest clients are the problem” becomes an excuse to raise prices without understanding the work.
Put the missing hours back into the job
Illustrative worked example — two fictional monthly service accounts. All figures exclude VAT and tax. Assume paid staff time costs £25 an hour, including the employment costs allocated to that time. Pass-through costs are specific external costs paid to deliver each account, not general office overhead.
| Monthly account | Clear scope | Constant exceptions |
|---|---|---|
| Fee | £600 | £900 |
| Delivery hours | 6 | 12 |
| Calls, revisions and administration | 2 | 8 |
| Total hours | 8 | 20 |
| External costs | £150 | £450 |
| Staff cost: hours × £25 | £200 | £500 |
| Contribution after these costs | £250 | −£50 |
The £900 account looks more valuable in a sales report. Yet £900 − £450 − £500 leaves a £50 deficit before any shared overhead. The £600 account leaves £250.
Revenue per hour is £75 for the first account and £45 for the second. After external costs, contribution before staff cost is £56.25 versus £22.50 per hour. That second measure explains why the larger fee cannot cover staff time costing £25 an hour.
ACCA’s discussion of activity-based management provides a useful foundation: customers consume activities as well as products. The costing exercise should follow those activities rather than assuming every pound of revenue requires the same effort.
A loss on paper is not automatically a saving tomorrow
Suppose the business allocates another £100 of shared overhead to each account. Their results become £150 and −£150. That does not mean dropping the second customer instantly improves the bank balance by £150.
Rent may stay the same. Salaried staff may still be paid. Some external costs might already be committed. The relevant short-term question is what would actually disappear, and what useful work could fill the released capacity.
If all £450 of external costs are avoidable but staff pay is fixed for the month, cancelling loses £900 of revenue and saves £450 of cash costs. Cash contribution falls £450 unless replacement work or other savings follow. Over a longer period, twenty hours of capacity could have substantial value. Both observations can be true.
This prevents a common mistake: using a full-cost report as though it were an immediate cancellation forecast.
Reprice the work that really exists
The second account needs £950 merely to cover its £450 external costs and £500 staff cost under these assumptions. To leave £250 contribution before shared overhead, its fee would need to be £1,200. That is a proposed price based on the model, not evidence that the customer will accept it.
There is another route. Keep the £900 fee but agree a narrower service using ten total hours and £350 of external costs. £900 − £350 − £250 leaves £300. The commercial conversation is then about scope, response times and deliverables, not whether someone is a “good” client.
Write down what counts as a revision. Agree who supplies information and by when. Distinguish a routine query from a new task. A friendly unlimited promise can be a surprisingly expensive contract term.
Check the cash relationship as well
A profitable account can still absorb cash when payment arrives after wages and suppliers must be paid. Record days to payment alongside contribution. Do not mix unpaid invoices with revenue that has never been earned, or assume every late payer will default.
For new work, consider whether agreed staged billing or a deposit matches the delivery schedule. For existing work, investigate disputed invoices before treating a payment delay as a collection failure. Sometimes the business has created the delay through unclear approval steps or inaccurate billing.
Use a review, not a blacklist
For a month, record delivery, preparation, calls, rework and collection administration separately. Review exceptions with the person doing the work; a neat timesheet category can conceal three unfinished handovers.
Then choose among four actions: improve the process, narrow the scope, agree a sustainable fee or end the relationship on the agreed terms. Allow for strategic reasons to retain an account, but give those reasons a budget and a review point. “It might lead somewhere” is not a margin calculation.
The useful outcome is not a league table of irritating customers. It is knowing which promises the business can afford to keep, and pricing the rest honestly.
