Firing difficult clients is not only OK, it's downright smart, says Jeffrey Pawlow, the founder of the Growth Partnership, a consultancy aimed at accounting firms. "Business [is about] professionals selling their time, and there's only so much time to bill or sell," he says. "Firing clients is addition by subtraction."
An erstwhile marketing officer for several accounting firms and Norwest Bancorp, Pawlow opened his own St. Louis-based shop in 1999. His 20 consultants advise accounting firms, from solo practitioners to high-profile shops.
Pawlow recommends dumping three general types of clients. The first group, not surprisingly, includes late payers and bona fide deadbeats. Even first-time offenders should be eyed with suspicion, warns Pawlow, because they often cause more trouble in the future. "Small businesses don't have the luxury or the resources to chase bad debt all the time," he says.
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Next on the chopping block are clients you may have outgrown and who are now just a bad fit. Or perhaps your business model has changed and continuing to provide that old menu of services is more hassle than it's worth, even for devoted clients who pay on time.
Then there are those giant pains in the neck. You know the kind: The incessant complainers who try to milk more service for less, sucking entrepreneurs' precious resources and exacerbating their ulcers.
In many cases, when entrepreneurs do drum up the fortitude to dump a client, they've already torched too much money, time and perhaps even part of their reputation. "After it's done, all our clients say: 'Why didn't we do it sooner?' " said Pawlow. "It's always harder to pull the trigger than live with the result."
How to ferret out lousy clients earlier than later? Pawlow's tip: Grade them periodically. Indeed, his firm has developed a scorecard to do just that.
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To develop your own scorecard, start by selecting a set of key valuation metrics--such as the number of services provided, fee potential, ability to offer referrals and even loyalty. (For many of Pawlow's clients, deciding which factors are most critical is an eye-opening exercise in itself, he says.) Next, weight each one according to its importance in your organization.
For example, a low-revenue-generating client might be a font of referrals, thus pushing up the client's overall grade. Or perhaps a pipsqueak is worth holding onto if its growth prospects look bright. A large client might be demanding and difficult, but the prestige it lends your firm via testimonials in ad campaigns may be worth the headaches.
Pawlow says his own business improved dramatically when he started firing clients. These days he and his colleagues review clients and make the appropriate cuts--usually five to ten from an average roster of 50--every year. "You use the process to validate your decisions," he says. "It's like a weight has been lifted off your shoulders."
Psychic benefits are nice, but so is a little extra cash. If you're going to fire a client (particularly a small fry you have outgrown), you might want to refer them--for a fee, of course--to a smaller competitor who could use the extra work, says Pawlow.
Note: If you're on the receiving end of that transaction, think about structuring the payment as a percentage of fees generated by the client--a little protection should you want to do some firing of your own.
