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When Should I Fire My Client?

Five types of difficult clients and ways to handle them

by Randy Shattuck, Entrepreneur, Marketing Consultant
and Founder of The Shattuck Group

In this economic climate, more and more B2B professional services firms find themselves challenged to meet the expectations of their clients and still maintain desired levels of profitability. Clients have become more demanding while at the same time their budgets have shrunk. Sometimes, it can be in the best interest of your firm to shed difficult clients. But this is a tricky move and can have disastrous consequences if it is not handled well. The steps outlined below can help guide you in a logical manner through the two stages of this process: 1) choosing whether or not to fire a client; 2) deciding how to fire a client.

Stage 1 – Should I Fire This Client?

In our experience, clients are difficult in many different ways. Let’s look at just a few examples because this will help us set some criteria for deciding whether or not to let them go:

The Mean Talker:

A verbally aggressive client can be very difficult to handle. Sometimes, they can be set off by the slightest comment and can be demeaning, threatening and vulgar. That’s the bad news. The good news is that mean talking clients can often be turned around. In our experience, there is one simple remedy for dealing with this type of client. Silence. Listen to the client and you will usually hear two things. First, you will usually hear that they have a frustrating job and that they are personally challenged to deal with it and often feel overwhelmed. Second, you will hear whether or not you and your firm are contributing to the problem. If you have done something to add to their headaches—apologize. Take responsibility right there in front of the client and then commit not to do it again. And then don’t. However, if you can see that your firm is not contributing to the problem, don’t tout this. Carefully ask what you can do to help. You might be surprised how many doors this will open. A verbally aggressive client can become your greatest ally if you support him or her the right way.

The Profit Drainer:

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Profit drainers come in many different varieties. Not all profit drainers are cantankerous. In fact, some are the nicest people in the world. But they all have one thing in common—they want too much for too little. The bad news about profit drainers is that they are the most difficult clients to salvage. The first step is to ask yourself “how badly do I want this business?” It may well be that replacing this client is significantly more expensive, as a percentage of annual profit, than retaining them. Or it may be that replacing them could substantially increase profits. Your sense of how difficult it is to replace the profit should be the guiding factor in making the big decision to keep or cut.

Second, it’s important to determine where the client wants to squeeze. Clients will sometimes make a blanket statement like “you’re just too expensive.” Delve into that with them and find out if there is a specific area or service where they think you’re not competitive. It may well be that simply giving up that area can solve the problem, especially if you are not willing to reduce your fees.

Third, find out why the client wants you to reduce your fees. In some cases, market turns can justify cuts in profitability, and refusals to do so can be disastrous. After the crash of 2001, numerous companies in the Silicon Valley brought in their vendors and demanded a 30% cut in fees. Sometimes, it’s not just your firm who is being squeezed. Fourth, find out if you are being undercut by a competitor. If they have the same cost of operations and profitability goals as your company, then matching their offer will usually eliminate them from the picture. But this is always a tough judgment call.

The Scope Changer:

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Scope Changers, like Late Approvers, create account management nightmares. Scope Changers often add just a little bit more at a time to a scope of services and justify it by saying “Oh come on—it’s not that big a deal.” Scope Changers are actually some of the easiest clients to rein in. There is a very simple formula for dealing with them. Don’t let them do it. Don’t let them add to the scope without a handy little device called a “Client Change Order.” Do the hard work up front of defining exactly what should be in a Scope of Services and make sure every service outside the scope is handled via a Client Change Order.

It’s important not to be too picky with this because you can drown a client in process and paperwork and that’s not a good thing. A fair rule of thumb is 2%. If a client asks for something additional that totals as much as 2% of the original project, it should be met with a change order. Or, if a group of small tasks total as much as 2%, they should be combined into a change order. Keeping the client honest engenders respect for your time and profitability.

The Late Approver:

Nearly every professional services project has a deadline or multiple deadlines and most deadlines have an element of client approval. The Late Approver is the kind of client who misses his or her deadlines consistently but still wants you to deliver on the original schedule. Late Approvers are handled best by two pieces of documentation that should be in your contracts.

The first is your project deadline schedule that outlines the client’s responsibilities. In the case of a multiple stage PSO engagement, progress is sometimes incremental and dependent on completion of the previous stage. Be sure to highlight the client’s responsibilities for approval and put hard deadlines on them. If you are going to commit to deadlines, they should too. It’s only fair. Also, include a statement that says something to the effect that every day the client misses a deadline adds another day to the completion of the final project.

The second way to handle Late Approvers is to add a clause to your Terms and Conditions about “Rush Charges.” Rush charges allow you charge the client extra if they miss their deadline but demand that you meet yours. Also, a Rush Charge clause protects you from vendor liabilities. If you rely on vendors to deliver services, they sometimes will charge extra when a project pushes them outside the window of their customary business hours. Your Rush Charges clause should put the Late Approver client on notice that they can still behave the way they want, but it’s going to cost them.

The Slow Payer:

The Slow Payer is the kind of client who consistently hits 90 days before payment or pushes payments out until you send them to collections. Like Profit Drainers, these clients are not always mean-spirited. They just take far too long to pay and this impacts cash flow, the bottom line and overall growth. Fortunately, there are several steps you can take to turn a slow payer into a client in good standing. First, never issue lenient credit terms to a new client where you have no payment history. It is a good idea to engage in a small project first and see how they pay.

Second, create a staggered payment schedule where payments must be delivered upon completion of stages before work begins on the next stage. This way, you never loose leverage in the account. Third, if you have a repeat client whom you simply bill and then await payment from, and if they are consistently tardy, consider adding a rebilling fee to your Terms and Conditions. A rebilling fee allows you to add a percentage to an invoice (typically 1.5%) when you have to send a reminder invoice. However, don’t be surprised if the client gets upset when they see the first rebilling fee. But stand by your guns. You can often use the rebilling fee as a point of leverage in the account to get other concessions you may want. In other words, you can promise to void the rebilling fee if the client does something for you in return. This often builds good will in the account and accomplishes the goal of more timely payments.

It is not uncommon for a client to exhibit many or all of the symptoms above simultaneously. This is indeed a challenging situation and should be approached with care. It is probably best to choose any two areas where you want to see improvement and begin to implement changes. But take this slowly or the client may decide to fire you.

Stage 2—How Do I Fire This Client.

If you decide to fire your client, there are a few simple steps you can take to make the process as painless as possible and possibly even get them back. First, set up a meeting with the client and tell them in person why you are letting them go. In your conversation, focus on the numbers so the client knows it’s not personal between you. Never burn bridges or make it personal in professional services. It always comes back to haunt you.

Second, have some documentation on hand that shows the client how they are no longer profitable for your company. Sometimes, a simple print-out can go a long way toward changing a client’s perspective. They are so used to looking at their own numbers that looking at your numbers may be the shock to their system that brings profit back to you unexpectedly after you have chosen to live without it. That’s always nice.

Third, keep in touch with the client after you have let them go and see how your replacement is doing. It may well be that the client will have realized that value is not only about costs. Superior service costs more up front, but saves time, headaches and problems on the back-end.

Randy Shattuck is an entrepreneur, marketing consultant and founder of The Shattuck Group, a full-service marketing firm that specializes in helping B2B professional services companies meet their growth goals. The Shattuck Group offers four Core services: Strategic Marketing, Media Marketing, Web Development and Custom Research. The Shattuck Group has worked with technology consulting practices, professional placement agencies and a variety of software and hardware companies including Nortel Networks and Sun Microsystems. Prior to founding The Shattuck Group, Randy held senior marketing positions with several technology companies including Acclaim Technology and Contec Microelectronics. Randy can be reached via email at randy@theshattuckgroup.com.