Prioritize your client list
The first step is to prioritize your clients. Identify the ones that produce the most profit for your firm. It’s likely you’ll have productive and strong relationships with them.
Now take a look at the rest of your clients. They’ll be less profitable or harder to work with. That’s OK, they can’t all be A-listers. But if the costs of doing business with a client start to outweigh the benefits, it could be time to fire them. Even if they’re still a source of revenue, a difficult client is not a good use of time. They might be distracting your staff from more profitable work or, even worse, affecting morale.
Ask yourself if they could be replaced with a top-performing client?
1. Identify your A and B-list clients
Your A-list clients provide your most productive and profitable work. It’s likely that you:
- like the type of work you do for them
- get referrals and endorsements from them
- provide them with services that are progressive, in-demand and growing
- enjoy working and interacting with each other – professionally and personally
- send them holiday gifts or invite them to events
On a day-to-day basis, A-list clients are also:
- immediately responsive when you need them to be
- comfortable using similar technology to you
- prepared well in advance of deadlines
- able to take feedback well
- quick to learn, hard-working and organized
In other words, when your firm provides an A-list client with a service, you’re more productive and profitable. Your B-list clients don’t have all those qualities but they’re still profitable and relatively easy to work with.
2. Know your C-list clients
Your C-list clients provide a steady stream of revenue, but they might:
- use less profitable services
- pay bills late
- be tricky to work with
They’ll have redeeming qualities, but if you’re honest with yourself – you know your C-listers are part of your firm’s past, not its future.
3. Acknowledge who your D and E-list clients are
Clients that are very difficult to work with are on your D and E-lists – and they could be damaging your business. You can measure this by asking if your time would be better spent:
- finding new clients
- spending more time on your A and B-list clients
- offering new services to your A and B-list clients
If the answer is ‘yes’ then you should consider moving on. D and E-list clients often:
- use your least valuable services
- pay slowly or dispute invoices
- act abrasively in meetings
- lack the trustworthiness and integrity you expect
These clients slow down your business, which reduces productivity. Your firm can probably do better without them.
Think about your future
Rather than evaluating each client one by one, you might choose to phase out an entire service, or deal only with clients who use cloud software.
Whatever your criteria is, be careful about how you prune your client list. You don’t want to become over-reliant on one or two businesses for most of your revenue.
Pointers on how to fire a difficult client
You’re not just wondering how to fire a client – anyone can do that. You’re wondering how to fire a client without causing distress or burning bridges. Even if the relationship is strained, you should take care over the way you end it.
1. Check your engagement letter
Most standard contracts should give you the freedom to terminate the relationship but it’s worth checking your paperwork. You’ll also need to choose an appropriate time to make the break. You shouldn’t walk away in the middle of important work.
2. Maintain your integrity
If you have difficult clients, you can’t simply ignore them and hope they go away. For all client terminations, you need a termination-of-services agreement, which should include the reasons for ending the relationship.
If your relationship is fine, but the business isn’t as profitable as you’d like – tell them in person. Your professionalism will be appreciated.
3. Refer them elsewhere
Try to make your final interaction a constructive one by helping your ex-client find a new firm. This is particularly important if you’re terminating the relationship to focus on a different industry or you’re phasing out services. You don’t want your old client feeling abandoned or lost. Help them transfer their data and records to the new firm.
4. Make the truth easier to swallow
You may have a strong reason for ending things with your most difficult clients and you can share the rationale with them. The feedback might even make them a better business partner for their next firm. But use diplomatic language and try to include some factors that make the news easier to take, such as:
- My firm has a new strategic direction
- A conflict of interest has arisen with another client
- There’s a cultural mismatch between our organizations
- We’re technologically incompatible
- Our fees are increasing
5. Raise your fees
If you’re firing a client because they’re unprofitable, consider raising your fees. Or you could add surcharges for unproductive functions like:
- digitizing paper documents
- excessive phone support
- copying and administration
Who knows? Your client may agree to the new fees and become profitable again. Or perhaps the fees will motivate them to become more efficient – by moving to the cloud, for instance. In the worst-case scenario, they’ll take their business elsewhere and there’ll be no need for you to terminate the relationship.
6. Remember that news travels fast – so stay professional
The clients you keep may know the clients you drop. Use discretion when discussing terminations or previous clients with other people. Talking openly about firing bad clients may feel therapeutic at the time, but it can damage their reputation and yours. Maintaining confidentiality is integral to the accounting and bookkeeping professions.
The right decisions aren’t always the easiest ones
Breaking up is hard to do. But new and better business opportunities are out there. Knowing when and how to fire a client will help you in the long run.
Xero does not provide accounting, tax, business or legal advice. This guide has been provided for information purposes only. You should consult your own professional advisors for advice directly relating to your business or before taking action in relation to any of the provided content.