By Bill Good

I first saw the "Prune Your Book" idea pop up in the early to mid-eighties. By 1986-87, I had clearly associated this odd notion of getting rid of clients with what I then called the "Bad Year Phenomenon." I didn’t fully understand the connection, just that there was one.

In this first great surge of the bull market, I frequently ran into (mostly) broker-types who would admit in the course of conversation that they were having a bad year. When most everyone was having a great year, it was odd to run into people having a lousy one. So I poked around, asked questions, and after quite a few such conversations, I settled in on a first question to ask whenever the "Bad Year Phenomenon" stuck its head up out of the mud.

"A couple of years ago," I would ask, "did you give away a bunch of accounts?"

Many times—not always, because there are many reasons for having a bad year—the answer was, "Yes."

"And then what happened?"

"Oh, production went up immediately. I didn’t have to handle all those stupid little pesky questions from little clients… blah, blah, natter, complain, moan, whine."

"What happened after that?" I usually asked.

"I don’t know. I’m working harder. Something’s missing. I don’t know what’s wrong."

This first wave of "Prune Your Book" promptly disappeared on October 19, 1987 when the market took its now historic plunge. No one was kicking out revenue sources.

But it surfaced again by 1989. I tried to kill it again and did a pretty good job of driving it out of one of the major firms. Like some critter in a radioactive waste dump, the damn thing has mutated again. Since I know this idea is bad for you, bad for the goodwill enjoyed by you and your firm, and just crummy personal ethics should you decide to go down this sorry road, I’ll make another stab at driving a wooden stake into its heart.

The real issue is a complete misunderstanding of …

Here’s the logic of book pruning:

80% of your business comes from 20% of your book. True statement.

But you spend more than 20% of your time with the 80% of your clients who produce the 20% of your revenue. Also a true statement.

Therefore, if you chop off some of the clients at the bottom, you free up time to work with the 20% that produce the 80%. This increases your revenue. A true statement, in the short run.

Two years later, your business sags or even collapses. Also a true statement. To fully understand why this is the inevitable end of this sorry story, read, "Never, Ever, Ever Give Up A Client." (Research Magazine, November 1992. I have archived all articles I have written since 1984 at www.billgood.com. Click on the Marketing Info link. I’ve put a special link to this article in Marketing Info.)

Book Pruning "Success" Stories

I did a round of seminars last November in Canada. Because so many people were wrestling with the issue, I took it on. It came up in January at a talk I did for some branch managers at one of the big bank brokerages. Many people have since told me they are glad I talked them out of throwing clients overboard.

In Canada, I heard two "success stories" on book pruning.

In the first instance, I was told of a broker with one of the major Canadian firms who had literally purged her book of the bottom 80%. Out of 250 clients, she threw 200 overboard so she could work with her top fifty. As the story was relayed to me, "She’s starting to feel like she shouldn’t have done it." I bet she was feeling that way because you see the 80-20 rule really, really is a law. 80% of her business will now have to come from 20% of her clients—all ten of them. My prediction: Within a year, she’s moved on the to the elephant graveyard for RRs—the car lot.

In the second instance, I spoke with one of the top producers at one of Canada’s premier firms. His book was many hundreds of millions of dollars. He took some expert’s advice and offloaded every client with less than $50,000 in their account. About 400 clients got the heave-ho.

He told me, "I cannot go to the grocery store without someone coming up and berating me in public for doing what I did."

I asked him how he felt about it.

"Terrible. I wish I could undo it."

So how do you grow your business when you can’t afford to work with the little client?

The answer is: you build a team. You bring in associate RRs. You hire Service and Sales Assistants. You do exactly what I’ve been telling you to do since I started writing for this magazine in 1990. That little client who has $5000 to invest, if properly managed, is worth $1000 an hour to you…if you, personally, only have to talk with them when they have been thoroughly prepped by your staff. Period. End of argument. Thankyouverymuch.

I totally, absolutely and completely believe that the financial services industry not only will be, but also is being dominated by the large team.

I have read estimates that you will need $250 million in assets to weather the competitive storms coming this way. Maybe. Maybe not.

But with banks, CPA firms (that used to send you referrals), insurance agents, enrolled agents, and who-knows-who-else piling into the financial services industry, does it make sense to give up revenue streams? Negative.

Does it make sense to chop off two of the five lines that feed your A-book two years from now? Hardly.

And given all your good works to create goodwill, how much sense does it make to create ill will so intense that the clients you threw overboard will surface in a grocery store and chew you another one?

You know the answer.

So, when some alleged efficiency expert comes along and recommends you prune this or that percentage, I want you to do a little exercise before you do it.

Get a list of the 20% that produce the 80%. Beside each, write down one of these five numbers:

#1 = Referral from big client

#2 = Referral from big client, and this big client was in turn referred somewhere down the chain by a small client.

#3 = Formerly small client who came into money you would have never guessed. (This would be a client you are considering throwing off your truck were he or she a little client today.)

#4 = Referral from a small client

#5 = Came from some kind of prospecting campaign, cold calling, seminars, whatever.

Now add up the number of 1’s, 2’s, etc.

Figure out what percentage of your clients came directly or indirectly from your small clients.

Then you decide if the person who is advising you to drown those little clients—people who helped bring you to the dance in the first place—really has your interests in mind.

If you do this study, please email your responses to me at billgood@billgood.com. I will do a future article on the information you send me.

Bill Good is Chairman of Bill Good Marketing, Inc., producer of the Bill Good Marketing System^®. He is also in joint venture partner with Harry S. Dent in the H.S. Dent Adviser’s Network^SM, which trains financial advisors in the advanced use of Harry Dent’s concepts and materials. For information on any products from Bill Good Marketing, please call 800-678-1480.