Passion, People and Principles

Firing unprofitable clients

post # 460 — October 30, 2007 — a Client Relations post

Hi David,

I had a question I wondered whether you or your blog readers had any opinions on.

Many companies have unprofitable customers. This situation may arise for many reaons including:

* Poor pricing controls – offering large and multiple discounts

* Historic overservicing and undercharging long-term customers

* Lack of understanding of the true cost to serve

Nonetheless, whatever the reason, when companies do find unprofitable customers they need to manage them. They can be made profitable or they can be “fired”.

Do you have any ideas or strategies for actually firing customers? Does anyone have any examples of how their companies (or others) have done this and what the results were?

Regards. Daryn, Sydney, Australia

***

Well, gang, what say thee?

13 Comments

Nick Mallett said:

I have used a combination of the following propositions:

We are not set up to provide the service you require at a price you can afford. We have certain minimum client care standards and are not prepared to compromise them, even in the short term. Our reputation is everything to us, and to our clients. Clients cannot afford to be associated with a firm which does anything less than its best. I would like to introduce you to somebody whose set-up is more suitable for you at your current stage of development.

It takes sensitivity, but if done well it benefits your firm, the soon-to-be-ex-client, and the referee. The client appreciates your judgment of his problem and the fact that you have suggested a solution, and may well come back when he’s able to afford you.

posted on October 30, 2007

Bob McIlree said:

In addition to unprofitable clients, there are those who, while profitable, cost too much emotionally and otherwise to serve – i.e. overdemanding, slow-pay, marginal fee, “asshole” clients. These types usually are, or will shortly become unprofitable because one can’t keep continually jacking up rates to compensate for the constant demands or behavior. I’ve found that even if one can keep increasing fees in such cases, the toll it takes in all forms usually isn’t worth it.

There is a fuzzy line in the sand that I draw in cases like this that’s kind of a ‘kmow-it-when-I-see-it” thing. Once it is crossed, I usually do not try to salvage the account unless it’s a project-based gig that has contractual ramifications. If its hourly, it’s easier to manage and eventually disengage. Here’s a synopsis of what I usually do:

– If it’s contractual, I do not renew the contract, and try to find a suitable replacement for the client.

– If its hourly, I tie up loose ends, try to find a replacement, and politely decline further involvement. It is largely situational what exactly I tell the customer, but I don’t whine, bad-mouth, or otherwise disparage them. I just move on.

Some things to expect if and when you do this:

– Unless you have other business in place or immediately waiting in the wings, you will take a (hopefully short-term) revenue hit. The good news is that this action frees you up to pursue other opportunities with better clients.

– You should expect to be fired by the client before you can fire them. Some can’t take this sort of thing well and may dismiss you outright once you speak up. Always be prepared for this when you pull the trigger.

– Always have alternatives in place for their consideration, whether they are interested or not.

– Don’t badmouth the client post-separation regardless of what happened. Ever. I have observed that when good-to-excellent consultants act neutral towards a particular organization they’ve worked with previously, it’s a sign that the gigs may not have gone that well for whatever reasons. If they bad-mouth previous clients, then I get a rather negative impression of the consultant, not the client.

– Always realize that this is not the end-of-the-world for you, and when you get up the next morning, put on your best marketing and sales face and go get some new business. Corny? Perhaps, but it works.

posted on October 30, 2007

Barry Wilkinson said:

I am a member of a networking group for professionals.

One of our number (an accountant) has a variation on this which has earned him untold admiration from us – and from his own staff.

Each year, shortly before Christmas, his staff are asked to vote for the biggest PITA (pain in the ass) client – the one they they would most like to lose.

The “winning” client gets fired – its a democracy – and most years there is somebody who has upset enough staff to win by a clear margin.

Our colleague then drafts a tasteful letter explaining to the (now ex-) client that his business is not worth the trouble it causes.

This is one way of ensuring the Ron Baker principle of “Bad clients drive out the good”- does not take hold too strongly.

And the effect on staff morale is immense

posted on October 30, 2007

Sean Campbell said:

I simply let them know that we do A work for our clients and when we are in an enviornment where despite our best efforts we can not achieve that level I would rather give them the opportunity to work with someone else who might be a better fit for their current needs.

It’s amazing how many folks are suprised by a vendor who is willing to actually turn down work that doesn’t allow them to succeed at an A level.

I think you’ll find that unfortunately too many folks out there do not have a practice of turning down work that doesn’t fit what their firm can excel at.

But that of course can be a competitive advantage as well as long as you follow through on the first point above.

posted on October 30, 2007

Jim Donovan said:

Hi David

I agree with both the preceding comments. Some extra thoughts:

Sometimes all you need to do is ask for a better deal. Better to do that first, but if not successful, you must firie the client to show you mean it. Otherwise you’ve just perpetuated the problem.
Doing the firing is often best done by a more senior person – e.g. branch general manager, senior partner – who talks to the most senior contact in the client (ideally the CEO). That helps to take the personal history out of the discussion and is done as a peer to peer conversation, where more understanding of a professional exit may be engendered.
The team need to be prepared and briefed on what’s going to happen, why, and how to behave.
Be prepared for the client to say (often, when his /her execs find out and blame the over-zealous primary contact for ruining a good service provider) that your services are important to them and they are prepared to pay a viable rate. This happens a lot more often than you’d expect. Do you still want them? What will you say, and if you are prepared to stay engaged, on what terms?

posted on October 30, 2007

John Dillard said:

I agree with Bob’s comment above; “unprofitable” can mean a lot of things. If a client is asking you to act in a way inconsistent with your values it’s going to come back to bite you in the tail.

I once had a very profitable client who paid solid rates and generally stuck to the terms of all agreements, but who was routinely abusive to my staff. One one occassion the person made one of my more talented staff members cry — in a meeting — and I canceled the project on the spot.

All that said, if you are going to exit, you have to do it in an ethical way. If you have to spend extra money to transition it to another firm, you do it. The worst thing you can do is to “fire” a client leaving them in the lurch when there may be a lot at stake on the engagement.

My 2 cents!

John Dillard

posted on October 30, 2007

Mike Spack said:

Great comments! I have “fired” one long term client. Projects were always a rush job and then they would pay late. I politely told them in the middle of a rush job that we wouldn’t be able to do these types of projects in the future – we would need more lead time and we would need payment in advance. If they couldn’t change their terms, they should find an alternate provider. They appreciated the advance warning so they could prepare for the next time they needed a rush job.

posted on October 30, 2007

Carl A. Singer said:

Lots of great comments (above.)

It’s hard to measure the semi-tangibles of aggrevation, extra effort, emotional drain of “bad” customers. What is the saying, you spend 90% of your time on 10% of your problems.

Since we tend to measure everything in monetary terms, do we therefore hold onto a customer, no matter how “bad’ (by whatever non-monetary measures), as long as we have capacity and a positive monetary return.

I have some thoughts from the pricing side. Essentially, if you’re at capacity (based on your current size / planned growth rate) then in an ideal world you would choose only those most profitable customers. — Oversimplifying if you have room in your restaurant for 10 customers, attract the ten who eat most quickly and give the largest tips. “attract” in this case may shape how your firm structures itself, what market segment it addresses and also how it advertises / communicates. (Of course in the restaurant analogy you likely cannot directly choose your customers.)

If you can select / filter your customers than a preventive measure might be to establish a more robust screening mechanism before taking on new customers. (And an ongoing process for evaluating them as good customers can go bad.) Are their equivalents to “No shirt, no shoes, no service) that you can use (based on historical data or experience) to screen out would-be customers. Can you a priori identify would-be good customers – perhaps via data mining.

There’s an old paper on “Cream Skimming” on my website. Although it focuses on pricing and more on the flip-side, attracting / servicing good (more profitable) customers — it may provide some ideas re: identifying and shedding “bad” ones.

posted on October 31, 2007

Jay K said:

What about identifying toxic clients beofore they become real clients? I’ve dodged a couple bullets, from projects that I backed away from knowing they were heading for trouble. A wise man told me early on, you don’t want every piece of business.

I’ve found some signs you may be in for trouble:

– The contact wants you to solve their problem without admitting there is indeed a problem.

– Efforts to define the problem and solution bring only ire.

– They ask for a fixed price on a limitless scope.

– The organization works more like a disfunctional family than a corporation.

– They offer too much money.

– It is impossible to get feedback on even the simplest of documents.

Jay

posted on November 1, 2007

Arnoud Martens said:

My experience is that unprofitable or clients that are not matching in other ways is not a static thing. These clients become that way over time. At the start there is a good match between your services and what the client has to requests and offers back.

The clients business is evolving juts like your business. The client employs new staff just like you change the team for this client. So it is not strange if you find that something that worked in the past no longer works anymore.

Acknowlede this fact, discuss it with your client and try to change it, If it does not work out it is time to say goodbye and focus your energy on more rewarding work (financially and emotionally).

posted on November 3, 2007

T Hose said:

I think you must make the effort to turn the situation into a win-win relationship.

I often hear that these accounts were inherited from a previous manager. Then, later in the year, you review your portfolio and decide you must do something to boost your margins. As a result, the customer gets on your radar and you start feeling bad about the relationship and how you are going to deal with it. If this customer has not been visited in a while – you will likely have a bad meeting.

I suggest you talk it over with the client. Openly. Explain you are a business and operating for profit. Tell him you want his business and propose raising the rates against a higher level of service. Suggest him talking to other customers that enjoy your premium service and define the roadmap for both of you. I believe that if the customer understands your interests (as much as you make the efforts to understand his), you will be at a much better position to discuss better rates. By turning the meeting into a process, you gain relationship and the ensuing confidence. If you both decide later to depart, you will do this in a mature and graceful manner.

posted on November 10, 2007

Lawsuit Cash Advance said:

No doubt a company has to think about everything to remain profitable. But firing an unprofitable idea is not appealing at all. As may be that customer is unprofitable for us but if we keep on sending him our promotional offers and all the other benefits, he will surely help us in making our good will. It is commonly said that “Customers bring customers”. He will give us many other profitable customers.

posted on April 17, 2008

Sell Stuctured Settlement Payments said:

Well, I think that relationship skills can be developed. Every individual is gifted with inter-personal skills but some are more good at them than others. The company’s just need to give a chance to their people and they will prove their worth.

posted on April 17, 2008