From the July 2000 issue of Startups

When I started my consulting business out of my drafty basement, with no money and no clients, the idea that I would not want certain customers bordered on blasphemy. But what I soon discovered is that there are accounts that are, quite simply, not worth the effort. As your business grows, you will need to make some hard decisions about "breaking up" with a client or even passing on a company's business at the outset.

Don't get me wrong: I'm not advocating that you start severing relationships willy-nilly-after all, we love our clients, don't we? But all of us have limited resources, and we need to focus on those accounts that are clearly profitable while gently turning away marginal or unprofitable customers. Optimally, your sales process should prevent you from getting into sticky situations in the first place, but when you need to take a hard look at a relationship and its worth, you'll need some snappy evaluation tools.


Kimberly McCall is the president of McCall Media & Marketing Inc., a marketing, public relations and business communications agency in Portland, Maine. You may contact her at (207)761-7792 or www.marketingangel.com. She assures all her clients that she adores them.

What's It To Ya?

Even if you service only a handful of customers, you should have an idea of their lifetime values. Factor in your profit each month, the positive word-of-mouth and potential referral source they provide, and their prestige in attracting new accounts. For example, doing a small amount of work for a high-profile customer may be valuable in attracting new high-profile (and profitable!) accounts. Determine how much you must spend to keep each customer, including all overhead costs. Know how much time you need to dedicate to each customer-and don't forget your time investment in keeping up-to-date on each industry. If you have a high-tech client, for example, you'll need to invest a lot of time in keeping up-to-speed on the industry's lightning-quick changes.

Figure the costs to keep each customer, and balance those against the cost to acquire new customers. Pay special attention to your cost to retain and the cost to acquire new customers, as it is generally far more expensive to get a new customer than to keep a current one. Once you have a handle on how much each customer is worth, it will help guide you in the "know when to hold 'em/know when to fold 'em" process.

120 Days And Counting

The most common reason for ending a relationship is for late or nonpayment. But how do you know when to cut off services? Your contract should be explicit about your terms, including when accounts are payable, when they're considered past due and what late fees there are, if any. When a customer pays late, consider past history: If the client is usually great about payment and has one late month, you probably don't want to suspend service. Stay in contact and find out why you haven't been paid and when you can expect your check. If you're going to stop all services, clearly communicate the day when services will cease. Stand firm:-consider the headaches of sending bills repeatedly, the lack of cash flow and the damage to your relationship going forward. Also keep in mind the energy you expend becoming a collections agent rather than a guru for your particular service or product. If someone pays you extremely late twice, cut the client loose.

How Much?

Be prepared for this question. It's especially important if you're a consultant providing business services rather than selling your product on a large scale. You should know what you're worth and have your pricing structure well-researched by the time you go to market. If you've done due diligence on pricing in your industry and area of the country, you'll be able to handle price objections better. For example, if your hourly rate is $50 and a client insists on getting a $30-per-hour rate, you need to figure out all the ramifications of taking a rate cut. Will the project be high profile and be a good "foot in the door" with other prospects? Can you afford all your overhead costs and still pay yourself if you take the cut? What if the next client is unwilling to pay the full rate? Will you want to give up full-rate work to keep servicing the reduced-fee projects?

Clients making solely cost-based decisions may not be the best customers. They can be disloyal, always looking to jump ship when a better deal comes along. Cost-sensitive clients are also sometimes more demanding than other customers. As one of my public relations peers once said, "If they grouse about price substantially, they're gonna fly the coop."

It might make sense to pass on work that reduces profits. Jennifer Gratnick, an independent criminal defense attorney, sums up the issue in an article she penned for Guru.com: "Money is like a pilot's uniform or a doctor's lab coat-it establishes your credibility. Clients know they get what they pay for. If I quote a low fee to a prospective client, he wonders why I'm so cheap. He might hire me, but he'll always second-guess my judgment."

What We Have Here Is A Failure To Communicate

Despite your best efforts, there might be times when you encounter clients who won't openly communicate with you. This is a tough situation, because to do your job well, you need to understand your customers' directions. The best way to avoid problems is to have an understanding upfront about what you'll need and expect from the client, whether it's sales figures, customer feedback, budgets or marketing directions. If you do encounter a situation where you don't get what you need, ask for a meeting to reenergize the relationship and get back on track. Invite them to coffee or lunch and see if you can rekindle the business-friendly relationship. If you fail to get what you need after valiant attempts, it's time to consider letting the client go. You most likely won't do your best work for a company that's not fully invested in the process.

To be sure, having a bevy of customers is wonderful. But make sure you've got the right kind-those for whom you can provide superb service and who are good for your continued growth and profitability.

K.I.T.

Complacency is deadly in any relationship. Be they friends, family or spouses, once you start taking a good thing for granted, you're headed for trouble. And it sneaks up on you, too, in the midst of 18-hour days spent putting out fires, chasing new business and paying all the bills. But whether you have three clients or 3,000, you'll need to set aside time to keep in touch with each and every good customer you have.

There are many methods for keeping up-to-date with your customers. Direct mail, e-newsletters and telemarketing are doable for just about any budget.

Set aside time at least once per month to "touch" your clients. Make sure you have something to say rather than just "Hi, we're still here." Introduce new services and offer discounts; send articles on their industries or personal hobbies. If you keep track of clients' birthdays, send a birthday card, perhaps with a small gift. And of course, the holidays are de rigueur as a time to say an extra big thank-you.

Don't overlook public relations as a way to stay in front of clients. Each time they read about you in the paper or see you on the news, it will be a great reinforcement of why they do business with you.

The smallest personal touches can also be effective: a phone call to let them know of an upcoming event, a note on a monthly invoice to thank them for their business. Just think of how many times a day you're thanked for your business-not many, right? Stand apart from your competition by minding the little details that add up to excellent service.

Brain Food

  • Check out Guru.com, a Web site for independent professionals, for advice ranging from what to charge to how to deal with difficult clients. While you're there, create your Guru profile and check out available gigs.
  • Biztro.com will help you create your own intranet. The site covers administrative functions and business processes like payroll, benefits administration, insurance and procurement.
  • Freeagent.com is a hub for freelancers, consultants and independent contractors. Create your own free "eportfolio" with a link to your Web site, find projects for your areas of expertise, and check out deals on business services.