The business model of a service-based company is to attract and maintain a strong client base. It’s likely that your business puts a lot of effort into networking, marketing, and other activities to bring in new clients, in addition to ongoing efforts to keep current customers happy. However, there are cases when instead of focusing on hiring a new client; you need to fire an existing one. Although this may seem counterproductive, firing a lousy client helps you better focus your resources on other areas of business.
Letting go of a client is never easy. Most business owners cringe at the idea of letting go of a client, especially when a large percentage of their time is spent trying to attain new ones.
3 Types of Bad ClientsThe Irresponsible Client
- Consistently late or missed payments and often complaining about a bill or price of services.
- Needs constant explaining and hand holding in order to hold up their end of the business relationship.
- Refuses to implement any of the changes, improvements or recommendations you have dedicated countless hours towards, only to then complain that they aren’t seeing any results.
If you have any of these types of clients, it may be time to have the “it’s not me, it’s you” talk. Here’s why...
The Irresponsible Client
You charge for your services for a reason. The cost of your services turns into revenue, which then goes to paying your employees, utilities, rent, and other business associated costs.
If you have a client who consistently pays after their invoice is due, or you have to chase them down to make a delinquent payment, it’s time to cut the cord. Why? Late (or missing) payments disrupt your cash flow, which over time can be detrimental to your business.
A client who continually pays late, haggles every bill or tries not to pay at all does not value you or your services. The amount of time you spend providing services for this client, in addition to the time you spend playing collections manager, is better spent on another client who pays their bill on time, on a regular basis.
Letting this type of client go helps improve your cash flow as well as eliminates the stress and frustration of having to make collections calls every month.
The Immature Client
Most businesses strive to go above and beyond for their clients; however, there is fine line between providing outstanding service and a customer who abuses these privileges. For example, if you or your service team consistently dedicates more time for a specific client to re-explain processes or handle additional or trivial items outside of your scope of services, then it’s time to say goodbye.
Holding one client’s hand means you are spending more time on one particular client over the others, but are getting paid the same rate. This leads to lower profit margins as you aren’t getting compensated properly for your time. Firing this type of client allows you to invest in your more profitable clients or to look for new business.
The Resistant Client
It happens all the time. A financial advisor gets called in to create a plan of action. Or, a business consultant is hired to help improve efficiencies and productivity. Both professionals spend their time and energy developing a solution to a client’s business problem, and then the client refuses to implement any of the changes.
In a perfect world, the service model should work like this – a client hires you to fix or improve business processes, you make your recommendations, and then they implement the necessary changes.
If a client is depending on you to fix what’s broken, but is then hesitant or resistant to change, progress cannot be made. Additionally, if these problems continue to fester, this client will likely turn into The Immature Client – a client that needs extra hand holding.
As a service-based business, your success is measured by your client’s outcomes, yet if they refuse or half-heartedly adopt your solutions, then your reputation will also go down with their ship. If a client begs for better, but settles for status quo, then it's time to find a client who is more suited for your service model.
Low Gross Is Grief
Evaluate what clients should be fired and increase your revenue and your profits by replacing the lowest margin clients with higher margin clients.
If you keep low margin clients out of fear of losing cash flow, or not being able to replace them with a higher margin client, you will kill your business. Don’t be afraid to fire low margin clients – after all, Low Gross is Grief (LGIG). This means your lowest margin clients give you the highest amount of grief and eat up your staff’s valuable time.
Where should a small business owner turn to determine whether to fire a client?
To predict the impact of a business decision on future performance, a business owner must rely on management accounting.
Management accounting is internal accounting which helps business owners put their numbers to work to make data-driven business decisions.
Break free from the burden of bad clients - you’ll have a more profitable business, and a happier team to work on getting more of the good clients.