I know our focus here is building–building new business ventures, building new or better careers. So, it seems odd to even ponder getting rid of those hard-won customers. I mean, you’ve given up nights at home with family and friends, lazy weekends and relationships to serve these customers. Should you…could you…actually get rid of any of them?
The truth is, there are actually times when you should let a client go, or not take him/her on to begin with. This has been a recurring theme in my work with coaching clients lately. I’d like to share a couple of their stories (the names are pseudonyms).
Carla, an account manager at a small advertising agency, manages several accounts at any one time. She enjoys th work, but lately has considered quitting because of a difficult client. Carla, her team and her company have bent over backwards to meet the client’s needs, often giving the client reduced rates and credits on her invoices. The client has blown up at Carla several times on the phone and in meetings with the larger team, has misrepresented communications between she and Carla, and has spoken to Carla’s boss about Carla on multiple occasions. While Carla feels that her boss has been satisfied with Carla’s explanations, Carla worries that her boss will not continue to “be okay” with “refereeing” conflicts between she and the client. Carla and I decided that she should begin taking copious notes and communicating with the client in writing and in the presence of other team members–a temporary fix meant to give Carla some sense that she was not free-falling at this client’s mercy.
During one of our sessions, Carla mentioned that the client was “too much work for so little money”. She called her a “strategic client”, a client that her company originally pursued because they believed being associated with the client’s brand would attract other clients, and because the client lead was friends with the client lead on a larger, more lucrative account her company hoped to land. Carla’s company never landed the larger account, in part, they speculate, due to this client’s poor recommendation.
I suggested Carla do some research to see if her opinion that the client was “too much for too little” was borne out in the numbers. And, if it were objectively true that the client’s business was not profitable, or worse, that the company is taking a loss to keep the client, Carla should approach her boss with the information and recommend “firing the client”.
Carla is still doing the research.
Walter, an HR consultant with a fairly new practice, came to me initially because he was having “sales anxiety”. No, I’m not a psychotherapist, and Walter doesn’t have a mental disorder. He is just like me, and probably many of you; he gets the jitters at the thought of rejection, so selling his services takes great courage. Walter’s practice is building steadily; he has a core group of clients and a few in the pipeline. Walter has been working on landing one client for more than a year. And, once Walter finally got to the table with the client, the client wanted premium service for dollar-store prices. Walter came to me very torn about whether to take on the client. He was elated and disappointed all at once. He’d finally gotten the meeting. There was a potential to do a lot of challenging and interesting work. Having this client might bring in other big-business clients. BUT, the client wanted everything Walter had to offer, but didn’t want to pay Walter’s rates. The client told Walter he had a budget, and based on that budget, Walter would need to provide his services at nearly 75% of his fee. Walter operates at a 30%-40% profit margin, so taking this work would take a big bite of his profit margin. His question to me was “Should I take the work because I’ve worked really hard to get it and because it might bring other clients, even though I won’t make much money at it?”
My answer to Walter was that he needed to consider more than just his business development work and his rates; he needed to consider the staffing, hours and tools required to serve this client, and whether or not he could actually deliver a product/service he’d be proud of for the fee the client was willing to pay. I advised him to consider this: Is it worth taking the work if he would ruin his reputation by not being able to adequately staff the project or to satisfy the client (If the client was unhappy and Walter was too resource-strapped to fix issues, all of the other possibilities–more work with this client, leveraging this account to land others, growing his practice–would be in jeopardy).
I advised Walter to go back to the client with a proposal that he provide fewer, more urgent services at a higher rate to start, that he would conduct a diagnostic assessment to determine what further services were needed and in what amounts and time-frame. This way, the client only paid for what he absolutely needed and stayed within his budget. And, Walter was able to maintain his profit margin and offer the high-quality service that would continue to enhance his reputation.
The client accepted Walter’s proposal.
These are two very different scenarios–one involving a working professional building her career within an organization, the other involving an entrepreneur and his new business venture. In both situations the goal was to determine the value of a client.
In both situations, my clients were asked to take an objective look at not only the basics–the service they must provide and the fees they hope to gain–but also the entire cost of the client–the fees, the staff, tools, facilities, time and other resources required to provide the product/service, the opportunity costs (what they give up, i.e. the clients they have to short-change, the clients they can’t take on) and intangibles like the strain on employees and the potential the likelihood for leveraging this client’s account into more accounts.
I shared a formula that I think does a pretty good job of capturing the value of clients. It’s not my formula, but one that I found in Robert Kaplan and Stephen Anderson’s Time-Driven Activity-Based Costing. Here’s the formula:
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