Should I turn a difficult client away?

I’m uneasy about taking on this client, but I’m not brave enough to turn business away. What should I do?

The other day I took a call from one of the partners in a design business. She was working on a sizeable proposal, but felt that the potential client might not be a good fit for their business. Her question was, “Should I say ‘no’ to this job?”

Working with the wrong clients costs you dearly. The most common form of “wrong client” is the one who misunderstands (and I use that word politely) the scope of your services and essentially comes to you wanting to pay for the Kia Rio even though you only stock Mercedes. The challenge is that although you sense that they are going to be difficult to work with, when you are growing a business it’s hard to find the courage to say no.

One of the best ways to get brave is to see how much some of your worst performing clients are costing you. Yes, costing you.

The way to do this is to take a robust look at each of your clients and calculate how much it costs you to serve them. And that means the ‘real-cost’ not just the billable hours or product cost. Real cost includes all the time you spend with your client ‘nurturing the relationship’, responding to calls, performing rework, hand-holding, invoicing, chasing debtors, providing credit, etc, etc. The litmus test is to ask yourself “if we didn’t have this client would we be doing this task?” if the answer is ‘no’ then the task goes into the pile of costs.

Next, compare the real-cost with the income you receive from the client by using the simple ratio of income divided by real-cost. Then order your clients according to this ratio, from high to low.

Take a good look at the bottom 10%. If any of the ratios are less than one you are in trouble. Effectively you are paying to service these guys.

Now calculate how much more profitable your business would be if you could replace the bottom 10% of clients with top 10%.

This calculation will be the catalyst for you to take on no more bottom 10%.

But how do you spot them before they become clients?

Look again at the bottom 10%. What have they got in common? Where did the opportunity to work with them come from? What do you remember of the proposal process with them? In other words, what can you learn from these guys to sound alarm bells with new prospects.

The partner in the design business told me that the potential client reminded her of “X”, a client that had been tremendously hard to work with. I suggested she go back and ask the potential client a ream of questions so that she could establish exactly how much this potential client was like “X”.

It turns out that the partner thought the potential client was too similar to “X” and decided to reject them as a client. Which of course begs the question: “how do I tactfully reject a potential client?” Suggestions for that I will leave for next week’s article.

Julia Bickerstaff’s expertise is in helping businesses grow profitably. She runs two businesses:Butterfly Coaching, a small advisory firm with a unique approach to assisting SMEs with profitable growth; and The Business Bakery, which helps kitchen table tycoons build their best businesses. Julia is the author of “How to Bake a Business”  and was previously a partner at Deloitte. She is a chartered accountant and has a degree in economics from The London School of Economics (London University).