• Fired Fortune

Sometimes You Just Have to Fire A Client

by Noel Bagwell
for Executive Legal Professionals, PLLC

July 15, 2015

“You’re Fired!”

Donald Trump is running for President. I don’t even really know how to process such a surreal fact. Trump is famous, among other things, for his catchphrase, “You’re fired,” which he famously brought to bear against a number of “apprentices” on his reality show, “The Apprentice.” Whatever you may think of Trump, it’s clear he has no problem firing people with whom things are just not working out. That’s an important trait for a businessperson to have. Surprisingly, to some, that inclination should not be limited to employees. Sometimes, you just have to fire a client.

Letting a client go is rarely easy. For one thing, clients (or customers) are usually a business’s primary source of income. So, severing a relationship with a client is going to hurt, at least financially. It might also hurt in other ways. You may have worked with a client for a while, formed a relationship with them–bonded on some level, even. So, telling them you can no longer do business with them might be very difficult.

Whenever you decide to fire a client, there are a five guidelines you should use to help you decide whether it’s a good decision:

1. Consider Your Opportunity Costs 

Take a look at how much uncompensated time you spend dealing with each client you suspect may be problematic. Let your instincts guide your initial selection process. If you feel, in your gut, that one client or another is consuming a disproportionately large share of your time or other business resources, follow-up on that instinctive assessment, and examine the opportunity costs associated with that client.

2. Make a Business Decision 

If the benefits of maintaining a client relationship exceed all the costs, including opportunity costs, of maintaining that relationship, do not sever the client relationship. The converse is also true. It’s just that simple.

3. Show, Don’t Just Tell, Your Client You Value Their Relationship With Your Business 

Make sure, when considering firing a client, they understand you value their relationship with your business. Firing a client does not mean that you find no value in your business’s relationship with the client; it just means that the benefits do not exceed the costs. Communicating, using your actions and your tone of voice, that you sincerely recognize the value of their relationship will help you maintain an amicable professional relationship with the client. In a business world in which Internet reviews can make or break your business, this may be the difference between getting good referrals from a former customer or having to repair your brand’s image online.

4. Don’t Be A “Bad Breaker-Upper” 

One of the most important parts of a relationship is how it ends, because nearly all relationships do end, at some point. How a relationship ends determines, in the future, how you think of, how you treat, and how you communicate with others about the person with whom you had the relationship.

Think about the way in which your words and actions, when you tell a client you need to bring your business relationship to a close, will affect how that client is going to think about you and your business from then on. How will they describe your business to others? Will the refer people to you, or ward them away? If you’re a “bad breaker-upper,” don’t expect any referrals.

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5. Make Room for Reconciliation 

Let a client know why it’s over, if you can do so without hurting their feelings. Tell them something like, “If things were different–say, such and such circumstances–we’d be happy to continue on with you as a client.” In other words, tactfully set a goal or expectation for the client, letting them know that if they meet that goal or expectation, they can return to you in the future, and be your customer once more.

For example, if a client of yours is engaged in political activism, and their cause de jour is distasteful to you or draws unwanted criticism from other clients, vendors, suppliers, etc., you may tell the activist client, “We’re getting a lot of backlash from people in our industry about your outspoken stance on such-and-such issue, and, therefore, we just can’t afford to risk these other relationships for one client. If, however, circumstances change, please know that we have no problem whatsoever with you, and we would love to do business with you again, if it would not pose a risk to the rest of our business.” You may find an even more delicate or tactful way of saying that, but I trust you understand the message I’m conveying, here. Leave the door open.

Let the 80/20 Rule Be Your Guiding Light

The Pareto Principle (also known as the 80/20 rule) states that, for many events, roughly 80% of effects come from 20% of causes. Applying this rule to our discussion, we can infer that roughly 80% of your problems come from roughly 20% of your clients, whereas 80% of your revenues also come from 20% of your clients. It is incredibly important to understand that not all clients will belong to both groups of “20% of your clients” (though some may)! A reasonable business goal would be to eliminate as many of your clients in the first group as you can, without cutting clients from the last group. Where these groups overlap, try to find ways to improve the efficiency and effectiveness of your client interactions.

Observing the Pareto Principle by selectively firing a client which is not really cost-effective for your business to maintain, and by focusing on improving client relationships that are both lucrative and somewhat problematic, you will improve your business’s profitability and give yourself the space you need to focus on providing the best quality of goods and services you can provide to all your clients. The next article in this series focuses on answering the question: “Which Clients Should You Fire?

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