Firing a Client

Meetings & Conventions: Firing a Client December 1997 Current Issue
December 1997
Firing a Client

How to recognize when it's time to cut your losses

BY MARIA LENHART

When Bonnie Wallsh first hung out her shingle as an independent meeting planner, she had the idealistic notion that every client's business was worth whatever it took to make them happy. But 19 years of experience has taught her otherwise. She has learned to identify what she calls "toxic clients" and to sever ties with those who may be hazardous to the health of her business. "You're better off without them," says Wallsh, president of Bonnie Wallsh Associates, Ltd., in Charlotte, N.C. "They sap your energy and they literally poison your life."

What makes a client toxic? For Wallsh, one was a nonprofit organization whose director made demands she considered unethical. The problem first surfaced during a meeting in Montreal where registration fell far short of the room blocks at four hotels. "One hotel quite reasonably wanted us to release the rooms we didn't need, but the client refused," says Wallsh. "I had loyalty to my client, but I felt the supplier was being treated unfairly."

The same problem soon resurfaced during a meeting in Cleveland. Again, registration fell short of the room block, and the client not only refused to release any rooms but also wanted the hotel to waive meeting room charges, claiming inconvenience because one of the elevators didn't work. "Once again, I was in the awkward position of agreeing with the hotel, not my client," says Wallsh. "We had serious philosophical differences that were threatening my relationships with suppliers, not to mention compromising my integrity."

Wallsh further describes toxic clients as those whose demands are unrealistic, both in respect to what her time is worth and what a meeting should cost. "I believe in exceeding expectations and providing top service, but some people take advantage of that," she says, recalling one client who required her to rework the estimated meeting budget 10 times. "It was very poor use of my time."

Equally vexing was when the same client, against Wallsh's advice, decided to allocate just $1,000 for a wine-and-cheese reception for 300. "You don't have to be a genius with numbers to predict that we would run out of food," she says. "It put me in a situation that I hate to be in. I take pride in what I do, and I don't want to be associated with a bad meeting."

Ultimately, Wallsh had to let both clients go. She honored what was left of multimeeting contracts and then, with plenty of advance notice, referred them to other meeting planning companies (she had contacted colleagues in advance who were willing to take on the business). That was more than a year ago, and Wallsh has no regrets.

Quality vs. Quantity

Was Wallsh being too picky or was she simply using good business sense? Management consultants agree that trimming your operation of unprofitable or exceptionally difficult clients ultimately strengthens your business. "It's tempting to assume that it's quantity of business that counts, not quality," notes meetings industry consultant Bruce Tepper, partner in Joselyn, Tepper & Associates in San Francisco. His own experience has taught him that "getting rid of an unprofitable client can be best for the bottom line. If clients are too demanding or won't pay our rates, we don't want them."

However, determining which clients to nurture and which to show the door is not always easy. Chicago-based consultant Ramond Silverstein, president of PRO: the President's Resource Organization, recommends taking three factors into account: profitability, long-term business potential and "the hassle factor" -- how difficult it is to deal with that client.

Money Talks

To determine profitability, take a hard look at the client's ability to pay for your services and how quickly the client pays. "Do some research on any new client and ask for financial references," says Silverstein, adding that sometimes the largest, most financially sound clients may be the worst offenders when it comes to settling their accounts. "Large companies sometimes delay payment because they feel they have the clout to get away with it," he notes. "That can wreak havoc with your cash flow."

Back away from any client who takes too long to pay or asks for too much credit, Silverstein advises. "Too much tied up with a client could mean real trouble if they declare bankruptcy or suffer a setback. If they go down, you could go out of business."

A Matter of Time

Financial responsibility is only part of what makes a piece of business profitable. The amount of time spent serving each client and the fees involved are also major considerations. David Hakins, president of Hakins Meetings & Incentives, in Wyckoff, N.J., believes so strongly in this that his company has set up an automated accounting system that tracks each and every expense involved with a project, including the number of hours spent on the job.

"Each staff member has an hourly billing rate, and, regardless of whether we are charging on a cost-plus basis or on a fee basis, we track the hours," says Hakins. "This allows us to determine the profitability of each account and also gives us an idea of what we need to charge for future business."

Sheer profits are not his only concern. "It's not cut and dried," says Hakins. "You have to balance a lot of factors." Among them: long-term business potential. Says PRO's Silverstein, "If a client isn't too profitable at the moment, they might be in the future. Clients with growth potential are worth retaining, even if they're not as profitable as others." But if a client is squeezing your profitability, even the promise of getting more business won't be worth the effort, he warns.

Growing Pains

Perhaps the biggest drawback to retaining toxic clients is that they take valuable time and energy away from attracting and servicing a better class of business. "It's a matter of defining who you are and where you want to be," says Steven A. Jacobs, president of Conference Solutions in Lake Zurich, Ill. "From there, you can determine who you want to do business with."

But while such a philosophy may work for well-established planners, can those who are just starting out afford to be choosy? Jacobs, who founded his company three years ago, admits that in the beginning he took everything he could get. Now, however, he is more selective. "I prefer to concentrate on clients who want a full range of services; if I take on piecemeal projects like registration, I get bogged down in busy work," he says. "That leaves little time and energy to focus on the business that I really want." But rather than flat-out rejecting clients, Jacobs refers them to colleagues whose specialties are a better fit. "My colleagues, in turn, refer full-service business to me," he says. "No one loses out."

Specialization is key, says management consultant John Boyd, president of Transformation Management, Inc., in Dublin, Ohio. He recommends that new meeting planning firms define themselves carefully and avoid taking on clients they're not equipped to handle. "Consider your expertise. If you work primarily with low-tech clients who are happy with an overhead projector, think carefully before jumping into a high-tech project. That doesn't mean you can't grow in new directions, but don't misrepresent what you do."

Conversely, it doesn't always make sense to keep the clients you've outgrown. "Perhaps you've done a booming business with state associations, but are now branching out into more lucrative national accounts," says Boyd. "You want to focus on more profitable business. You also recognize that hanging onto some of your smaller clients won't allow you to grow."

Gently wean away business that is no longer worthwhile. "Explain your situation and refer them to a reliable company that wants their business," he says. "Hand them over, but allow them to call on you for help or advice for a year or so if the need arises."

Can You Say No?

Depending on the circumstance, it may be necessary to try to work things out before calling it quits. "For many independents, it's not realistic to just drop a client cold, no matter how often we may mumble about doing that under our breaths," says planner Sheryl Sookman, president of Sookman & Associates in Novato, Calif. "You may have invested a lot of time and effort in that client and you may not have work to replace it right away."

The answer may be as simple as raising your fees. "When we find that a client is unprofitable, we level with them and explain that we need to meet our margins," says Hakins. "In some cases, the client is willing to pay more for the next project. If not, they have the opportunity to move on."

"Some clients are only too happy to pay more money," notes Tepper, recalling the experience of a colleague who tried to unload a client by asking him to pay an "aggravation fee" of 25 percent above the usual charge. "Not only did the client go for it, he was proud. He bragged to everyone, 'I'm so difficult to work with, I get charged 25 percent more.'"

A Gentle Goodbye

Of course, it's best to end a professional relationship without animosity. "The industry is too small to make enemies," says independent planner Sherri Cook, president of Sherri Cook & Associates in Plano, Texas. "And people change jobs all the time -- you never know when you may be working with someone again."

Ideally, the client should view the parting as a mutual decision. "Never let a client know that you don't want their business," says Cook. "It's better to convince them that you're acting in their best interest. Explain you're not the best person to handle their needs and why they would be better off with someone else." Along with diplomacy, timing is important. "Give the client plenty of advance notice -- don't call someone up on Monday and tell them they're out on Tuesday," says Hakins.

Here's the Door

Of course, some breakups are uglier than others. "If clients are really bad, if they verbally abuse you or create dissension among your staff, just cut them off," says Boyd. "I had one client who made sexist remarks to female staff members. I spoke to him about it, but the problem resurfaced at a meeting. I just got up and walked out."

Consultant Odette Pollar, owner of Time Management Systems in Oakland, Calif., also believes there are times to cut your losses. "If the client is asking you to do something illegal or unethical and won't take no for an answer, get out of the situation immediately," she says. "When you get a knot in your stomach, trust it." *

Business You Can Live Without

Enough grousing: Is it time to let that pesky client go? Ask yourself these questions, compiled from veteran planners and management professionals. More than one "yes" answer may mean it's wise to say goodbye.

Is the client verbally abusive or otherwise unpleasant to work with?

Does the client have unrealistic expectations of what you can provide for the price he is willing to pay?

Does the client impose unethical demands on you or your staff?

Is the client's business more time-consuming than other jobs with similar fees?

Does the client fail to pay bills for your services on time and in full?

Is this job outside your area of expertise or the direction in which you want to grow? * M.L.

Making a Graceful Exit

The breakup may not have been mutual, but here's how to present it as such.

Have a reason. Two examples: 1) Your services are too costly for the client's needs. Based on their budget and your overhead, you simply can't provide them with the services they require; or 2) Their requirements do not fall into your area of specialty, and they would be better off with another planner. Don't disappear. Give the client plenty of advance notice before terminating the relationship. Complete the projects you have committed to, then go your separate ways. Drop a lifeline. Offer to refer the client to another planner who may be interested in taking on the job. A business relationship that didn't work for you may be fine for someone else. * M.L.