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3 ways to manage unprofitable clients

[Written for Replicon blog]

With the ever-increasing cost of acquiring new clients, we all know and recognize the incredible importance of customer retention, especially in the professional services space. And yet — the once-anomalous customer divestment is fast becoming a popular option for firms that want to rid themselves of their less-profitable clientele. According to the Harvard Business Review, 90 percent of surveyed executives said they had “given some serious thought to divesting customers,” and 85 percent said they already had.

But despite this spike in popularity, at the end of the day there will always be risks in purposefully dropping customers — not only to your bottom line, but also to your reputation as a service provider. No one wants to lose money, and no one wants to be known in their industry as difficult to work with. Before seeking to divest completely, consider our tips for better managing unprofitable or trying clients:

Reassess the relationship

Before choosing to divest, holistically consider your relationship with a client — taking into account other factors aside from just profitability. Is your client truly unwilling to spend more, or just unaware of all the services you offer? Have their needs changed over time, and — if so — can you accommodate these changes? What about your own strategic focus — are there times it might shift away from certain clients, and make them feel unattended to?

Maintaining positive relationships with clients is no exact science, and their satisfaction with your services relies on quite a few different factors — only some of which you can control. Assess whether it’s in your power to revive an unhappy or unprofitable client, or whether their satisfaction is out of your hands, and it’s time to let them go.

Manage expectations

“Managing expectations” is certainly a buzzword in the marriage counseling space, but the same general principles apply when dealing with unruly clients. From the get-go, clients need to be equipped with the right knowledge to not only navigate the (likely complex) services or solutions you offer, but also to understand the specific terms of their relationship with you. Ideally, you’d like to deliver this information during the negotiation phase, before a contract is even on the table. If you take the time to clearly delineate the ways in which you create value for a potential client, then expectations on both sides can be determined early on.

Be sure to discuss the limitations of your relationship as well — if there are certain triggers points that might tip the scale for you toward unprofitability, then make those clear as well.

Keep a record

The flux nature of many projects can leave you susceptible to scope creep — and there are clients out there who either actively capitalize on this, or simply aren’t aware that they’re exceeding the original scope of a project. Of course, starting off with a clear plan (see: “Manage expectations”) can help mitigate scope creep and project overrun to an extent, but you need to be aggressive about tracking the details of hours worked and tasks completed for each project or client your firm takes on.

By tracking project progress in real-time, you and your team can address potential scope creep in real-time, and attempt to get ahead of it by communicating with your client as quickly as possible. Additionally, in aggregating both real-time and historical project data, you’ll be able to make quick comparisons between actual data and estimates to know as soon as possible when you stray from projected costs or timelines.