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Wednesday, February 07, 2007

BREAKING UP IS HARD TO DO, by Daniel Shogren

By Daniel Shogren, CPA, SPHR

I heard somebody the other day tell a group of his peers that he’s serving fewer clients these days and working far less than he used to. But, he says, he’s much happier than he used to be, and he’s making much more money.

His secret: he’s telling some of his long-standing clients that he cannot serve them anymore, and he’s sending them to somebody else – usually his competition. Mind you he’s not ridding himself of his best clients. He’s shedding those clients that don’t pay on time, that quibble about his fees, that drive his staff nuts with their nit picking, who have unrealistic expectations, or who are downright abusive and expect to get away with it because they are paying for the right to do so. Still, it’s tough to tell someone who pays, and who keeps coming back to pay again and again, that it’s time to hit the road.

He calls it ‘tough love’. Whatever you call it, it is a tough prescription for many to follow.

Our relationships with our clients are much like marriages. In the old days people stayed in bad marriages out of a sense of duty - whether for the kids or because of the social stigma of a divorce. Except for cases of abuse or infidelity, divorce was rarely an option. But today the stigma is gone, and we see more and more marriages ending in divorce.

And in business too we are seeing commercial relationships that are undergoing more and more disruption. In the old days any client that paid their bill – even if we had to hound them to pay – was viewed as a good client. The key criteria for accepting a client seemed to be their ability to pay – nothing more. But with increasing frequency we hear about professional service providers who are divorcing themselves from bad clients.

Just as in a domestic marriage, divorcing a client is usually a gradual process. “Surprise, I don’t want you as a client anymore” situations rarely occur. Most often the process of deterioration is slow. The relationship becomes less personally and professionally fulfilling. What once were minor irritants become festering problems. You cringe when you’re told they are on the phone, or you avoid them when you see them out in public. Divorces in business usually occur because service providers and their clients have ignored the maintenance of their relationship. They have let what once were small irritants grow to become major stumbling blocks to growth in their relationship.

Many organizations are undertaking a periodic evaluation of all their clients (and you could add here, referral sources, vendors and others) and ranking them on a number of criteria to determine whether they should retain them as clients or let them pass on to someone else. It might be a good idea to get your staff involved in the ranking process. Ultimately, besides the objective questions you have to ask, you’ll have a number of emotional issues that you’ll have to deal with. In fact, it might be a good idea to get some outside independent advice and counsel when you go through this process. Client relationships are often the result of personal relationships, either directly or through referral sources. And, people often have an ego investment in retaining a client.

Here are just a couple of things you might use when you consider the vitality of your client relationships:
  • Are we making money or just making ends meet on this client?
  • Do they pay on time or are they consistently late or overdue?
  • Does the client treat us like an ally or an enemy?
  • Do they cooperate with us by providing, on a timely basis, information we need to effectively serve them? Or do you have to badger them?
  • Are they always late and thus forcing us to rush to meet their demands?
  • Are they nice people? Are they pleasant to work with, or are they rude or crude? Does our staff like working with them?
  • Does the client see us as a valuable service provider and as a business resource, or are we merely viewed as a commodity vendor or worse yet a necessary evil?
  • Does the client refer other clients to us? Or is there the possibility that what they say about us in the marketplace is unfavorable?

Once you’ve scored your clients on these questions you then have to determine whether the relationship is worth saving.

Is there still time to have a heart-to-heart talk with your client to see if things can be saved, or is it already too late? If the relationship is worth saving, you’ll have your work cut out for you. Don’t expect to resurrect a relationship overnight that has been on the decline for months or years. The longer you’ve been in a relationship, the longer you’ll have to spend getting it back on track.

Ranking the client at the bottom of the list and then deciding that it is not worth working to fix the relationship still doesn’t make it easy to make a break. But, once you’ve made the decision to make a break, don’t delay. Your best approach is to send them a letter that says something like this: “It appears that your business needs no longer match up with our capabilities and interests, and therefore we will be unable to provide service to you in the future. We believe you will be better served if you establish a relationship with another provider, and suggest you contact (fill in the name and address of another provider here). We will be happy to send your new service provider your records and to cooperate in any way we can to make this transition as smooth as possible. We wish you all the best for your future success.”

Now who you send them to is up to you, but the fellow I mentioned at the beginning of this article sends them to his top competitor in town. The reason: he’d like to see his competitor bogged down in these high-demand, low-margin clients so he won’t have the time for the high-margin clients. By the way, whenever he gets a referral from his competitor he’s alert to the possibility that the competitor is “returning the favor!”

You'll discover a couple of things once you’ve made the break.

First, your staff will likely applaud the move. I’ve known several firms who had “killer clients” that wore on staff and caused excessive turnover. For some reason the bosses never realized this, or the cost of turnover would have been an early warning indicator and a factor in whether or not to the retain the client.

Another thing you’ll notice is that you’re much more relaxed and refreshed in the office – not having to worry about dealing with that horrible client anymore. And you’ll certainly find that you have more time for your better clients – more time to add value to them and a better opportunity to charge higher fees.

Those who have gone through a divorce know by experience that divorce is a “process” – often taking a long time – it is not a single event. The good news is that in a business breakup, you’ll be able to move on and begin new relationships. And you too will most likely find that you are happier and able to make more money than if you stayed in that bad relationship.
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Copyright 2003 Leading Values
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