By Tim Williams, Ignition Consulting Group
My colleague Ron Baker has coined what has come to be known in professional service circles as “Baker’s Law”: Bad clients drive out good clients.
What is a “bad client?” A bad client is a low-value client; they don’t add any value to the agency’s bottom line, professional satisfaction, or reputation.
- For starters, low value clients are unprofitable. There is simply no rational argument for keeping an unprofitable client. Look at most agency financials and you’ll see Pareto’s law in effect: 20% of your clients generate 80% of your income and profit. Generally speaking, about one-third of an agency’s clients actually cost the agency money.
- Low value clients usually run your team ragged because they’re poorly organized, have unreasonable approval processes, and make constant changes and revisions because they’re not focused enough to give the agency good input and clear direction.
- Low value clients often treat your team with lack of respect; thereby creating a relationship characterized by lack of collaboration, mediocre work, and strained nerves.
Not every dollar is a good dollar
So why are so many agencies filled with clients that fit this description? The excuse offered up by most agency principals is “they at least help cover our overhead.” They have the attitude that every dollar is a good dollar. But some dollars actually have negative value when the result is demoralized people who leave for other jobs and a damaged agency reputation that hurts prospecting efforts for both people and clients.
When less is more
Our firm once worked with a 50-person agency that had a roster of 45 clients. Their profit margins were razor thin, their work was only average, and their staff was literally overwhelmed by the demands on their time. The principals of the firm made the courageous decision to part ways with the bottom third of their client list – about 15 of their smallest, most unprofitable clients.
They agreed that they would resist cutting any of their key staff positions until they could judge the results of their actions. The result was a rejuvenatedorganization that suddenly had the time and ability to grow the business of their best clients, resulting in greatly improved profitability, s
taff morale, and work quality.
Bigger versus better
To quote another of Ron’s sayings, “Growth for the sake of growth is the ideology of a cancer cell.” The only kind of growth you should want is smart growth. Income is vanity, but profit is sanity.
P.S. One brilliant way to get rid of your low value clients is to charge them the highest price. Ironically, most low value clients end up getting our lowest price, because they complain the most. Do just the opposite and your low value clients will disappear.