Steven Burns, FAIA, provides advice based on his experience when it comes to how to find new clients for your architecture firm.
10 Tips for Prioritizing A-List Clients and Firing Bad Clients
Firing bad clients is necessary to allow your firm to acquire more productive, profitable, and pleasing clients (A-List types).
The thought of firing a client may seem bizarre to some business professionals, particularly when “the customer is always right.” But for everything, there is a season.
Whether you’ve thought about them in this context before or not, you have A-List clients and you definitely know who they are. They are the ones that produce the most revenue for your firm and who you have the most productive and strong relationships with. Hopefully, you haven’t placed all of your eggs in one basket, since if a client is “too big to lose,” your firm could be at a disadvantage when it comes to negotiating prices—not to mention what might happen if they went to another firm.
Then, there’s the rest of your client roster with companies who aren’t as much of a joy to work with or for. If only they could all be “A-Listers.” They can’t, of course, but if you’ve found yourself burdened by a few (or more) clients that are a pain in the …, it may be time to fire them. Yes, even if they are a source of revenue, they may not be the best use of your (or your staff’s) time, especially if you could replace them with an A client.
If you are hesitant to drop clients in the current environment, that is understandable. But when business recovers and the new normal emerges, keep these tips on hand to streamline your firm.
Prioritizing Your A-List Clients
1. Identify Your A-List
Your A-List clients may not be the clients who generate your highest per-client revenue, but they probably offer the greatest profitability. If you’ve classified them as A-List, it’s because you enjoy the service you provide them, and you also enjoy interacting with them, and they enjoy working with you. These clients are the ones who you send the special holiday gifts to, not just the standard one.
In addition, A-List clients are often interesting, immediately responsive when you need them, and willing to collaborate digitally if you prefer it. During the current coronavirus situation, the willingness of clients to work digitally is imperative, and it will likely become the new normal. A-List clients also usually provide you with the data you need well in advance of pending deadlines. In other words, when your firm provides that client with a service, you are more efficient and productive, leading to greater profitability on their engagements. Imagine how productive your firm would be if all of your clients were a joy to work with.
Your B-List clients would, of course, be just below the A-List, in terms of overall productivity and profitability.
2. Drawing the Line
Your C-List clients may provide a steady stream of revenue, but be less profitable because the client is a challenge to work with. This could be because they are hard to reach or they consistently miss deadlines. Or, and this is a big one, the clients may not be as reliable on remitting their payments to your firm. They may have redeeming qualities, but they are not the foundation you want to build your firm upon.
3. Missing the Cut
If you have a few clients that are routinely difficult to work with (as in, you expect them to be a challenge month after month), these are your D- and F-List clients. You need to decide whether your firm’s time (and your own) would be better spent serving other clients or finding new ones. This is particularly important when it involves clients that:
you provide your least valuable services to,
are difficult to get payments from,
lack the trust and integrity you expect.
Each delay by the client, argument over billing, or uncooperative interaction diminishes your firm’s productivity. If this is more the routine than an exception, your firm can do better elsewhere. (If you’re wondering what happened to the E clients, that’s a good question for the academic establishment, since we’re using a grading scale.)
4. A Changing Business Landscape
Cutting specific clients may not be enough. As your firm changes service offerings, you may also choose to no longer provide some services, or you may not want to continue serving clients who are not technically-adept. If you are moving to the cloud, for instance, and you have clients who simply refuse to shift, it may not be in your firm’s best interest to continue supporting them.
How to Fire Bad Clients
So, if you’ve made an early list of which clients to sever ties with, or have at least one particular client in mind, how do you go about firing your bad client?
1. Check Contractual Obligations
If your client engagement letters were written following standard best practices, this shouldn’t be a problem. Still, make sure that any engagements are satisfactorily completed or paused at an appropriate point.
2. It’s Not You; It’s Me
You’ve had a business relationship with this client, so it wouldn’t be proper to simply ignore them and hope they go away. For all client terminations, you need a standard draft letter terminating your services agreement for whichever reasons you may wish to state. For clients with whom there was a better relationship, but who are being discontinued, nonetheless, communicating the decision in person may be the most professional.
3. Refer Them Elsewhere
When you’ve decided to terminate a client for issues other than their gross incompetence or unlikeability, you may wish to refer them to another professional. This is more likely to occur when a client is in an industry your firm no longer wishes to specialize in, or they paid for services you no longer intend to offer. After notifying the client, work with them and their new accounting firm to transfer the relevant data and work-product.
4. Little White Lies
For those clients that were the most difficult to work with, it might be uncomfortable to tell them the whole truth regarding your decision to terminate your business relationship. While it’s important that you try to stay professional, that doesn’t mean you can’t explain the factors behind your decision, including your firm’s new strategic direction or a conflict of interest.
5. Maintain Public Integrity
The clients you keep may be acquainted with the clients you dismiss, so use discretion when discussing terminations. Openly speaking about firing your bad clients may feel therapeutic, but it can result in negative consequences. After all, maintaining client confidentiality is critical to accounting.
6. Raise Your Fees
If part of your decision to terminate a client, or group of clients, is due to a lack of profit, consider raising your fees instead, or adding surcharges for nonproductive functions such as digitizing paper documents or excessive phone support. These fee increases or charges will help offset the extra time that some clients use up, while also incentivizing some clients to become more efficient in their collaboration with your firm (by moving to the cloud, for instance). At the same time, it may cause some of your least-desired clients to make the decision to move their business elsewhere, freeing you from the difficult termination discussion.
Don’t Be Afraid to Fire Bad Clients
While firing clients in the midst of a pandemic and recession may seem risky, if doing so allows your firm to acquire more productive, profitable, and pleasing clients (A-List types), it can result in better firm results. In these mostly-mobile times, clients that don’t accommodate your remote engagement policies may be among the first you identify as weak performers.