When to get rid of a client (and why)
Sometimes, a relationship comes to the end of the road. You’ve tried talking, cajoling, and maybe even shouting. But it’s clear that there is no fix. No therapist’s couch, no heart-to-heart, no intervention from friends. It’s over.
It’s time to break up with your client.
This isn’t an easy decision. A client of ours recently walked away from a $300,000 contract because he knew it wasn’t profitable. With our advice, he came to the difficult but correct conclusion—it’s okay, walk away.
He was able to confidently make this choice because knew his numbers. He knew he would never make up profits lost to inefficiency “on volume,” a familiar trap for entrepreneurs. He knew not to take on a low-margin project with the optimism to make it work. Because he knew, like most business owners, that his attention would move on to the next sale and he would never quite manage that low-margin account as strictly as he said he would – leading to losses that go unrecognized.
When (and why) to give a client the heave-ho is a tricky decision. But keeping a few key warning signs in mind will help smooth the process.
They take up all your time
The phone rings. You glance at the caller ID. Ugh, it’s “them” again. The client that calls and complains. The client who needs everything delivered yesterday. The client who pays late. They make you (and everyone who works for you) miserable. But they are one of your “best” customers. They buy a lot and may have been with you for years.
So why give them the ax? You might just make more money. Studies have shown that the 80/20 rule applies to profits as well as sales. That means that a typical company makes no money or actually loses money on 80 percent of its customers. And you likely spend the most time on your least important clients, because the important clients trust you and are therefore easier to please.
- Identify the culprits. Who are these mysterious clients that are dragging everything down?
- Show them the money. Numbers talk, and if the clients know where they stand compared to their profitable competitors, their eyes may open very quickly.
- Love them (back to profitability). Always look for the turnaround opportunity. Where can you target cost reductions? Can you shift personnel around?
- Leave them. If they’re not willing to play ball on cost cuts or price increases, it’s time to say goodbye. Maintain goodwill by helping them find another supplier, but be firm that the relationship has to end. It may make the difference in ensuring your survival.
The money stops flowing
The quickest way to know something is rotten in Denmark is when a client’s invoices go unpaid. Be polite, but address this immediately, should it happen.
Communicate, communicate, communicate. Keep in regular touch with your client and red flags will likely become clear before they become a problem. This opens this door to potential solutions or at least preventative measures to ensure you are not at risk.
- Try to collect on all open invoices. If a client’s payments slow down, offer to help out and take payment on a credit card, or a three-month payment plan.
- Get, and stay, in their face (politely, of course). Resend a billing statement with back copies of all open invoices every month. Your paperwork should be at the top of their stack, not buried at the bottom.
- Squeaky wheels get grease (and payment). Be the squeaky wheel. Take the time to make collection calls.
- Credit card sales only, please. If they request more of your product or service during this time, make all new orders credit card only. You benefit from the sale and won’t incur additional risk.
- Cut them off. Yeah, we said it. You might lose sales and may even have to make cuts to your own organization. But a non-paying customer, no matter how big, is bad news. You aren’t running a charity. Work with them but stand your ground.
Your staff’s morale drops
The old adage that it costs less to sell to current customers than to acquire new ones is undeniably true. But it is also true that bad clients, like bad employees, can destroy your business. They torpedo morale and divert attention from your shared mission—growing the company.
In this situation, the main goal (after basic profitability) should always be to retain your best people. Over time, they will bring you far more profits than one difficult client who may drive them away. It is not uncommon for incredibly-talented employees to leave a company because of stress (or even bullying) brought on by day-to-day client interactions.
At the end of the day, the balance of client and staff satisfaction is a delicate one, as is figuring out when to ditch your “best” clients who are actually dragging down your profits. When in doubt, make the call by analyzing the real impact on your financial situation. When the numbers don’t lie, cut the cord.
Profit Point Consulting’s mission is to accelerate the growth of small and medium-sized companies through sound, strategic advice, and proactive financial management. If you need a trusted advisor to help develop and execute your vision, call us at (973) 659-1430 or fill out our contact form.