No modern organization can afford to ‘carry’ poor clients.  Not only do they cost more than they are worth, but also they are very demanding, they bad-mouth your organization to all and sundry and they are quick to quit you as a supplier for a lower price elsewhere.

  1. The Salesperson’s Resistance

The very thought of abandoning a poor client will likely send shivers down the spine of most of your sales people.  In their minds it’s a subject that shouldn’t even be discussed, let alone acted upon.  They have done so much work to secure a client – 20 to 100 misses for one hit.  Even considering abandoning the client is anathema to sales staff.  However, sales people have to be guided and educated as to why carrying poor clients is disadvantageous to the company.

  1. Why Consider Throwing away Poor Clients?

The key to a successful business is to develop beneficial long-term partnerships with those you are trying to help.  It’s that simple.  As will be shown below, poor clients are anything but a successful partnership, anything but long term and obviously, you must be unable to meet their needs.  What you want is a positive supplier-client partnership, not a relationship where one group tries to take advantage of the other.  For a start, a good client will want you to make a profit.  To have a real partnership, you need to share corporate values, based on mutual help, mutual cooperation, mutual honesty and mutual respect.  If any of those is missing, this paper suggests you throw away the client – or, if you are dependent upon them in the short term, plan an exit strategy over the longer term.

  1. Specific Reasons for Getting Rid of Clients
  • You can’t meet their needs
  • They are too demanding
  • Cost of demands are too high
  • Demanding clients are low margin and short term
  • Low-paying clients cost
  • Non-paying clients cost even more

Assuming your firm is able to meet the demands of most of your clients and that you have attempted without success to meet the demands of a particular client, you have to objectively consider the situation.

a) Failure with Clients

Giving the benefit of the doubt to the clients, for the moment, if you are unable to meet their demands you either have a communications problem or you are doing something wrong with respect to those clients.  First, communications is easy to sort out.  Stop the blaming and start the talking.  Second, if you are doing something wrong, you have to quickly address and rectify the situation.  If you are unable to rectify the situation, perhaps your product is more complex than you can really handle.  You face the prospect of continually failing with this client.  You must break off the relationship with your tail between your legs and swallow your losses.  Suggest or arrange an alternative supplier to stay on the good books of this client.  If you persist unsuccessfully with this client, you will not only invest more questionably, you risk having the bad word about you spread around.  Remember a happy client tells one other; an unhappy client tells ten others.

b) Demanding Clients

Assuming your product is satisfactory and you know it is, but the client is continually demanding, you are probably dealing with the client’s psychological baggage which you have no hope, and certainly no time, to fix.  Often such a client attempts to lift personal self esteem by being the demanding ‘tough guy’.  Or the baggage may be the blaming type who deals with personal inadequacies by blaming others, never accepting even partial fault. Or perhaps the demanding client is merely a self-centered individual.  In any case, you never will be able to satisfy them.  Such a demanding situation helps no one; it wastes time; it costs you money; and it costs you potential lost orders from the inevitable criticisms of your work that will follow.

c) Cost of Demanding Clients

Demanding clients cost you money because they take more time than other clients and that costs you plenty.  For example, it prevents you from spending that time with your good clients or seeking new prospects.  Usually demanding clients come on board because yours is the lowest price.  They value you as a bargain.  That’s it.  If you are the cheapest price, then that is costing you money.  You can operate with low margins for only so long.

Once, I reviewed margins with one salesperson who somehow, had accumulated a bunch of low-margin, high-demand clients.  He was running his tail off with his 20 clients, who not only by their sheer numbers, but also by their demanding natures, were consuming all of his 14-hour days.  By contrast, another salesperson with 6 clients had the same total dollar margin and very few hassles with his clients.  We, one-by-one, set out to cancel these 20 low-margin clients at the end of their existing contracts.  Surprisingly, most of the clients did not want to be cancelled by us and offered to pay us more for the work, thereby overcoming the low margin aspect of the problem.  As a result, we only terminated one of the 20 contracts getting the margins back up to respectability.  The unreasonable demands also decreased.

d) Unfaithful Low-Margin Clients

If people buy from you because you are lowest price, then they have a uni-dimensional value system.  All they care about is price.  They rarely care about quality.  As soon as such people encounter some other supplier with a lower price, they will move away from you.  So they are unfaithful.  Your attempts to build up a warm, long-term relationship will be doomed to failure.  They’ll be gone as soon as the next lower price arrives.  And there will always be some sucker willing to drop price to make it up in volume.  (By the way, in 30 years in business, I never met a salesperson who was actually able to make up the losses of low margin in increased sales volume – but I’ve met lots who thought they could.)

e) Low-Paying Clients

Since 20% of your clients generate 80% of your business, that leaves you with 80% of your clients earning you only a small revenue (20%).  One has to consider what the costs are of delivering business to some of these lower-paying clients.  You may actually lose money with them.  There are strategic reasons for nurturing new clients but profits from better prospects pay for these costs, not to mention lost opportunity costs.  This is a touchy subject.  Our point is that it merits consideration and quite possibly, the ‘firing’ of some clients.

f) Non-Paying Clients

Clients who are high risk can cost you a bundle.  One client who is unable to pay will cost you the total price, namely 100% of the project.  If you assume a typical 5% real profit level, it will take you 20 regular orders to make up for the one failed one.  Obviously this situation is avoided by screening your new clients in advance and walking away from them before questionable ones become a liability.

  1. Learn to walk away

Not only do you, as a business owner, have to learn to pick your clients to eliminate the ones you wish you didn’t have, you have to instruct your staff to learn to walk away at the appropriate moment too.

Do this by establishing in advance the criteria for walking away from clients based on the principle that clients must represent the potential for an enduring, mutually beneficial partnership, (as detailed in the earlier portion of this paper).