I feel your pain. For the last 2 years, my customers have not heard the word no! No matter what they wanted, the answer was always yes, often at the cost of time and money to the business.
I have smartened up, and have managed to cull a few of my customers. What I did first did cost me a little more time. I basically found some other businesses, whose entigrity and service levels matched mine. I then talked them through my ideas, and my pricing model, and checked if they were interested in assisting with some of my clients.
I then discussed with my clients, and explained that we were trying to focus on our core service offering (or you could use something else if this doesn't suit) and have found an excellent company for them to use, who will be able to continue catering to their needs more than we can as we refocus the company.
This way, they actually really felt considered, rather than dropped like a lead balloon. Reputation in tact, and clients off loaded, plus some new business connections with the new supplier that have generated some business back the other way. Win-win-win