Fire Your Client

That’s right… I said “Fire Your Client”

Many business leaders will tell you that their business, like many other businesses, abide by the 80/20 rule.  As in, for example, 20% of the clients contribute 80% of the revenue.

Simplistically, one could automatically argue that the business should immediate fire the 80% of clients that contribute the lesser portion of revenue… and focus on better serving the 20% of clients that are actually paying the bills.

Why then, do we try to retain an unprofitable portion of our client portfolio?  Well, the answer to this is no different to why we – at a more personal level for example – would elect to stay in a home we cannot afford, drive a car not reflective of our needs, and so on. 

Appearance!  As in, “we have the most clients”, “we’re the largest vendor of XYZ”, “we generate the highest revenue” (probably also the most unprofitable, but who’s counting?).

A while ago I spoke with a client of mine (representing a major financial institution) and asked a couple of questions during our normal business chit-chat:

Q:  How many clients are you currently serving via your business unit?  A: 330

Q:  On how many of these are you actually making money (aka profit)?  A: less than 100

Q:  Why don’t you fire the other 200?  A: Because then they’ll go to my largest competitor!

Huh?

Just let them go!  At best, your competitor will then lose money instead of you.  Ah… but it’s not that simple, right?  If a flood of clients exit your current client portfolio to go to a competitor, it may appear (to the marketplace) as if clients had e.g. lost faith in your ability to service them, causing others (like the 20% you wish to retain), to also depart.  And that’s not at all desirable!

What’s the answer then?  There are a couple of methodologies one can employ that may prove to be less disruptive to a business overall, when firing clients.

(1)  First communicate your intent to the 20% (the keepers).  Meaning, if you tell a few larger clients that you plan to cull some smaller, unprofitable clients from your client portfolio in order to serve them, the keepers, better… they’ll likely be happy, rather than feel at risk.  No?

(2)  Also communicate your plans to a smaller sub-section of the 80% (non-keepers), who could perhaps potentially be viewed as keepers.  Why?  To ensure they understand that a business needs to be profitable, in order to support a good, sustainable and mutually rewarding business relationship. 

Then increase your fees commensurately, so that you can make a profit!  If they balk, fire them.  Heck, you’re losing money on those clients already.

(3)  Simultaneously instruct your sales team to focus only on net, new, profitable revenue.  This may require a strategic shift in sales strategy, including moving away from a commoditized type of sales offering (and related sales compensation plan), and cookie-cutter sales processes/pitches.

The recommendation above is likely to be a more than scary proposition for many business leaders… especially many that shouldn’t have been in business leadership positions to begin with.  And even more so, those leaders more accustomed to wielding a proverbial big stick, preferring to micro-manage salespeople, while lacking the ability to grasp sales as a business profession, conceptually!

Instead of culling the bottom few performers every year (I know Jack Welch, and you’re no Jack Welch), rather hire or train salespeople who have the ability to take your products and services up-market, into higher-paying, profitable client relationships.

Have you noticed that, when you disrupt your organization by hiring the wrong people, top performers leave and your company actually often ends up retaining only the bottom-feeders?  After making senior management changes, always ask yourself the question:  “Are we better or worse off than (e.g.) last year?”

On a more individual or personal level, you are currently selling your services to your employer.  I have to assume that this is a mutually beneficial relationship?  If not, why are you still there?

Your client(s) may be, and usually are, your employer(s).  This rings true whether you are an individual employee, a consultant, or a business providing services/products to clients.  As in, the employer is buying your services for a consideration (paid in money), which in turn makes you wealthier over time. Oh yeah, that’s called capitalism.

If a chasm in strategic direction developed between you and your client, respectively, then you should end the relationship… as in… fire your client!  If you’re delivering services to a client at a financial loss or burden to your organization (or yourself), then fire the client!

A chasm may relate to revenue/fees (as illustrated earlier), future strategic direction, leadership changes, service level commitments/expectations, business risk, etc.; or even combinations of any/all of these.

If you cannot find common ground to resolve these, then you’d be well served… to simply fire your client!  Otherwise, don’t bite the hand that feeds you, and serve your clients to the best of your ability, exceeding their expectations, at every interaction they have with you!