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When we first started out in business as a digital agency and before we built Roll for services based business, we didn’t turn down work. We couldn’t, we needed the work and we needed the cashflow that it represented. What we didn’t do fast enough though, was to change this approach as soon as we were able to. Why? It’s easy really. Bad clients will cost you money and your best clients aren’t necessarily the most profitable clients.
What do bad clients look like?
Bad clients can take many forms. It could be a bad client is as simple as a client that doesn’t pay their bills on time. It could be that they have bad internal process and under resource projects which puts pressure on you and your team. Bad clients could soak up huge amounts of your time and resource with un-chargeable work. It could be as simple as your values as a business are not aligned with their values or they could be extremely demanding and don’t respect your opinions and expertise which puts stress on you and your team. Clients can be bad for you for lots of reasons.
Effects of bad clients
Bad clients can have lots of impacts on your business. They can cost you time and cause delays to other projects whilst you juggle your project work to accommodate their demands. They can cause stress for you personally and negatively impact on your teams cohesion, cadence and health. They can also cause internal conflicts by having to deal with unrealistic demands and projects that are unhealthy.
There’s also an ‘opportunity cost’ associated with working with a bad client. Opportunity cost is defined as “the loss of other alternatives when one alternative is chosen”. Choosing to work with a bad client effectively ties up resources and prevents you bringing on new, potentially better suited clients to the business. Ultimately though, bad clients have the potential to directly affect the profitability and success of your business which is why it’s important to review your clients and understand what a good client looks like for you.
How to recognise your bad (and good) clients
Firstly, recognise that bad clients can seriously affect your business. This is an important step. Secondly, you should put in a plan to identify not just your bad clients but also your good clients. As is our ethos, keep it simple, but I would suggest that you have a plan to review your clients every 6 months or annually. To help with the process, you should try and list out what a good client looks like for you (and your team). You can then use this to review your existing clients. The reality is that as a business owner or manager, you will instinctively have an idea about who your good clients and bad clients are but by putting some science behind it, you’ll ensure you get it right. You might actually be surprised about who your good and bad clients actually are.
Think it through and be strategic. Is this client a good fit for you and your business and are they worth holding onto.
For users of our software (Roll), we’re planning on building functionality that gives each of your clients a health score based on a performance matrix. For us, it’s not just about making sure each project is profitable, it’s also about making sure the business is profitable and working well and for that to happen, being able to easily identify your good and bad clients is really important.
So, what can you do about bad clients
Firstly communicate. Once you’ve identified your bad clients, see what you can do to resolve the issues that each client represents. Talk to them. Tell them what isn’t working for you and see if they’re willing to help work it through. If you’re feeling pain working with them, chances are, they’re feeling pain working with you too.
If they’re not willing to change or continue to cause pain to your business, then let them go. To run a good business which works well and is profitable, you need to ensure that you remove things that make your business inefficient. Bad clients do this and will cost you money in terms of lost time and lost opportunity. Running a good business is all about not being afraid to make the hard calls when you need to.
And once you’ve worked your bad clients out of your business, don’t forget to take a look at your good clients and look after them. It’s just as important to recognise who your good clients are.