Cutting Your Worst Clients Could Be the Best Decision for Your Business
Spring brings a sense of renewal, as people set time aside to do an annual “spring cleaning.” These days, spring cleaning goes well beyond clearing out clutter and shampooing carpet. Successful businesses take it as an opportunity to review operations and find ways to be more efficient.
Here are ways eliminating your most difficult clients can help your business.
Following the Money
One area that could be bogging your business down is your client list. Some businesses subscribe to the 20/80 rule (also known as the Pareto principle) which suggests that 80 percent of your revenue comes from 20 percent of your customers. When applied to clients, this can also mean 20 percent of your clients are taking up 80 percent of your time. The 20/80 formula may not specifically apply to your business; however, you likely do have at least one high-maintenance, time-consuming client. Unless the money they’re bringing in is greater than the time they’re taking, your business can likely gain by cutting those clients.
Improving Your Customer Service
When you’re putting additional time and effort into making your most difficult clients happy, this means less for other customers. Difficult, time-consuming clients can be a drain on revenue. Especially if the amount of business they provide doesn’t justify the added attention. Additionally, you may find the endless stream of drama brought on by your worst clients exhausts your employees with the negative impact on morale felt by your other customers. Over time, you may begin losing clients and employees. You may not realize the overall impact the bad client is having on your business.
Freeing You up for Growth
In order for your business to grow, you need to win new business while maintaining your existing clients. When all of your resources are dedicated to making one or two difficult clients happy, you can’t spend time bringing in new business. By ending that relationship, you’ll free more resources up and potentially create the additional income necessary to grow.
Chances are, you already know which clients are consuming the vast majority of your business’s resources on a regular basis. But if there’s any doubt, do a full audit of your client base. Pull information on how many hours your employees spend on each, as well as your highest and lowest payers and those who consistently pay late. Then check any contracts you have in place to identify any termination clauses.
Once you’ve made the decision to fire, you have options. One route is to announce a rate increase and take the risk that the client may agree to pay it. Use this approach only if you’d be willing to continue to work with the client at the higher rate. Otherwise, you should simply state that you will not be able to work with that client after a certain date. It’s possible you can refer a colleague who will agree to take on the difficult customer. A referral can often be the best option for everyone involved.
If you haven’t conducted a thorough review of your client base recently and identified those who utilize the most resources without compensating for them, spring is a great time to make that decision. If you provide sufficient notice and handle the termination as professionally as possible, you’ll be able to end the relationship on good terms.