Management matters: Clients up or out

Jeffrey S. Krause is senior consultant at Affinity Consulting Group LLC.

Then, after you go out of your way to help them, they dispute the bill and only pay after demanding you write off some of your valuable time. 

Securing and maintaining clients can be hard, so you try to be flexible and accommodating. On the other hand, working with difficult clients can be a major source of stress for you and your team. 

The good news is that losing difficult clients may not be as damaging for your revenue and profitability as you think. What you need is a system for assessing your clients and moving them either up the satisfaction scale or out of your life. 

Understand your numbers 

Your firm generates “leads,” and you turn a certain percentage (conversion rate) of those leads into clients. Each client comes to you with a “number of transactions” and spends a certain “amount per transaction.” This generates revenue, and you get to keep some of it (margin). What is left is profit. The formula looks like this:

Leads x Conversion rate (%) = Clients 
Clients x Number of transactions x Dollars per transaction = Revenue 
Revenue x Margin (%) = Profit 

The genius of this profit formula is that it gives us insight into what drives profitability. Most of us believe that more clients or more revenue makes us more profitable. While that is true, clients and revenue are products of other inputs. For example, the number of clients derives from how many leads your firm generates and what percentage it turns into clients. Clients that come back often and spend more generate more revenue. Conversely, clients that increase overhead, waste time, demand discounts, or pay late decrease your profitability. 

Armed with this data, you should see difficult clients in a different light. This knowledge is the first step in the process of moving clients up or out. 

Grade your clients 

Grading your clients is the process of scoring them to determine where they fall on a scale of A through F. 

Starting from the bottom, clients who score an F include those who are abusive to you or your staff, and you should stop taking new work from them immediately. Clients who score a D waste your time, dispute bills, and pay late. Clients who score a C sometimes do these disruptive things. Clients who receive a B rating rarely do these things and only when justified. And clients who score an A on the scale are polite, communicative, and refer other A and B clients to your firm. 

While your staff and your intuition help when grading clients, the best place to start is with your technology. Running productivity and realization reports will quickly tell you which clients you are discounting, writing down, or writing off and how often you are doing so. This data will often confirm what you already suspect. 

Other than those who are clearly irretrievable, your goal is to move clients up the scale. 

Up or out 

Moving clients up the scale is about setting ground rules and sticking to them. If a client is calling constantly and then disputing their bill, make it clear that calls are billable. Also, make it clear that properly documenting the call requires you to spend and bill a minimum of 15 minutes per call. Stick to this and send them the resulting bill. Do not automatically discount because you think someone will not pay. If they balk at paying, offer a one-time write-off while stressing that, in the future, your billing policies will be followed. 

For clients who do not pay on time, establish and follow a system of reminders. A bit of directness goes a long way. You may even find that you have inadvertently allowed your clients to think it is OK to pay late or not pay at all. It is time to break that cycle. 

Most clients move themselves up the grading scale. Once they know the rules, they will call when necessary but avoid incurring a charge just to vent or complain. If they want to continue working with you, they will do so on your terms. 

Once you make these changes, you will also notice a few clients will move themselves out. 

If you are worried that this may lose you a few clients, you are right. However, this also frees you to do your best work for your remaining clients. 

Conclusion 

It’s frustrating working with clients who are a wrong fit for your practice. Once you realize that losing a client is not the end of the world, you can create a system that nurtures the best ones. Start moving your clients up or out today. Your future self will thank you for it.