Every business has D Clients. We all know who they are and I hope we know the price we pay by keeping them around. If you are not sure which clients I am referring to and why it is important to identify them before they cause too much damage, consider the following characteristics of D clients.
- Are rude, demanding, high maintenance
- Argue about prices or fees and are slow to pay invoices
- Require a disproportionate amount of our resources which can result in lower profit
- Create stress for your employees
- Don’t follow advice and don’t value service or building a relationship
- Negatively impact your company’s reputation
- Do not use recommended services or create any referrals for new businesses
By contrast, we all have A Clients who we love to work with and who love to work with us. Their qualities include;
- Open to advice or value add services
- Driven by quality service and importance, not solely price driven
- Appreciate our advice and look to build long-term relationships
- Professional and respectful towards your employees
- Refers new A type clients to you based on their positive experience
Why do we keep the D clients around? I will concede that for a new business start-up or a new office, the luxury of being too selective and turning away business may not be an option. The priority at this stage should be building market share and the need to generate positive cash flow. However, as the business matures and grows, the client mix will need to be addressed.
For more established businesses D clients will creep in because there is no discipline in place to look at the mix of clients relative to criteria that define an A client. Most companies do not look at the profitability of a client, or analyze the time and effort invested in servicing that client. If you do not understand the cost of keeping that client, you end up only focused on the fear of losing revenue if you no longer have that client. The cost of keeping D clients can be more expensive than you realize, including;
- Poor staff morale, higher turnover, higher recruiting costs, higher training costs
- Less attention to A clients
- Lower margins
- Less/lower quality referrals
- Poor cash flow
- More stress and frustration
You need to overcome the fear of not being able to replace the lost revenue from a departing D client by having a disciplined approach to assessing client value. Criteria to consider in your assessment matrix include profitability, reputation, referral potential, employee respect, fee driven vs. value driven, experience of management team, risk, payment history, etc. The criteria will vary by industry.
Once you have conducted an analysis of clients and ranked them, what is next? Should you start culling the D clients right away? There are companies that do this review annually and have policies in place that 10% of clients will be culled each year starting with D clients. While that may sound harsh, they follow this disciplined approach every year and the result is very strong, engaged clients, low staff turnover and a profitable business.
Giving up a client is a difficult emotional experience for a business owner and is not a natural action. It is important to have a strategy to deal with D clients. One strategy is to increase the fees or prices to accommodate the other negative aspects. This will often price you out of the work. Another alternative would be to simply fire the client and advise them you will not do business with them in the future. You could also advise the D client that your business may not be the best advisor or supplier for their needs and provide a referral to another professional. Whichever strategy you employ it is always important to judge the effect the departing client might have on your reputation in the marketplace.
My recommendation is to first try to salvage the D client and turn them into an A client. It is wise to make the effort to meet with them and deal with any issues in a professional manner. The issues behind the poor relationship may be the result of miscommunications, misunderstandings or old issues that have not been addressed and have festered over time. The solutions may be manageable and beneficial to both sides but will only result from opening a dialogue and exploring. If there is no solution, then both parties can agree to part ways and build new relationships elsewhere.
It is just as important to ensure your “A” clients do not become Ds. Look after them and they will look after you. Exceed their expectations. Put a customer management plan in place that includes strategies to improve the relationship and provide value added services that address their issues. The result will be a happy client, happier, more effective staff, quality recruitment candidates, better referrals, stable cash flow and a level of profitability that is based on a lower risk client mix.
For more information on this topic, view the Welch LLP webinar “Dealing with D Clients” with Managing Partner, Micheal Burch, and Cleveland Leadership Group President, Peter Cleveland.