Increase Profits By Losing Your Worst Clients

Great clients are the ones we all know contribute to the bottom line. But what do we do about those who seem like more trouble than they're worth?

Every business has at least a few ... clients who know what they want, value your input and pay on time. But can all your clients be coached and coaxed into a productive relationship?

There are a number of mistaken mantras, but the most common is "the customer is always right".

Other common refrains from small business are:

I can do this job in less time
I can do this job for less money
I can add this option for free

Before you know it you are pinned against the wall. Therefore you should do what is appropriate, given the price they pay and the value you should be delivering for that price.

Identify difficult accounts

You know the ones. They're quick to complain, slow to pay and push the boundaries by always wanting much more than what was agreed.

But increasing downward pressure on pricing isn't the fault of difficult customers. It's the problem of small business educating clients, incorrectly, to expect more and more for less and less.

Many small businesses carry unprofitable clients without even recognising it. Every year or two at least, complete a client evaluation to determine which ones should be let go so you can continue growing.

There are methods of identifying these accounts. You could develop a diagnostic of your own which makes sense to you. Alternatively, you could use an external supplier who can help identify customers that are high-risk based on their debt repayment history and profiling, so you know what their payment style and history is likely to be before you take them on.

The trick is to develop a peer mentality with your client base rather than a vendor mentality. You have to be a peer of the buyer - mutually evaluating whether this relationship is going to make sense to both of you.

Some factors to consider when assessing client worth are:

Complexity of work
Profitability
Referral (either how the client was referred to you or whether the client refers other people to you)
Additional opportunities for business in future
Timeliness of payment
The client's satisfaction with you

Don't be afraid to release non-profitable ones

Most small businesses can afford to release 10-15% of their client base every two years, thereby releasing the business from unenjoyable work and freeing up time to look for class-A clients.
A lack of time is an oft-quoted roadblock preventing small business owners from evaluating their businesses, but there are others.
It's a value sensitive market. You're allowing the client to focus on price before you've done your job to show them the value you can provide to help them.

Control the conversation

Be prepared for the objections from clients, like time or money. We've heard them all before so it's negligent of us not to be prepared for these objections. If we can't respond in a well-reasoned, timely way to clients and have conversations about value, then we've lost control of the conversation.
One way to keep control of the conversation is through smart questioning.

Three ways to convert unprofitable accounts to profitable ones

If you've identified some unprofitable clients, all is not lost. Try the following:

Provide the client with a choice of options to see if you can move them into a profitable state. Giving a number of options subtly changes the dynamic of the relationship from a binary one ("Would you like this, yes or no?") to one with greater possibilities ("Would you like option one, two or three?"). Now the client is thinking not whether I should use you, but how might I use you.
Change the relationship to peer level so you are not a supplicant.
Many businesses undercharge, so increase your fees and prices. If you lose an unprofitable client this way, it saves you the heartache of doing it yourself.

In summary:

Be prepared for objections about time and fees - Develop the confidence to engage your clients as peers and ask smart questions
Don't reduce prices - Clients always want to pay less but never want less value
Spend time building relationships - Everyone does business with individuals
Get around the gatekeeper - Deal with the person making the decisions
Establish five target markets - Not everybody is your target
Regularly evaluate - Evaluate your clients' worth to the business
Don't be afraid to cut loose problem clients - Put up your prices and they may disappear by themselves. A loss of 10-15% of clients every two years can be healthy

Ric Willmot, known as ‘The Consultant's Consultant’, is the CEO of Executive Wisdom Consulting Group www.executivewisdom.com; and the Founder of the Society for Executive Wisdom www.executivewisdomsociety.com. Subscribers of CEO Online receive 10% discount on all seminars and workshops by Executive Wisdom Consulting Group.
First published: 6 August 2008.
Last updated: 6 August 2008.