Is it Time to Fire Your Client?

How to know if a rocky relationship is worth the paying gig

Written by Jim McElgunn

Sometimes, a project for a client spirals so far out of control it takes your breath away. Doxim Inc. ran into just such an extreme situation when a project it had taken on for a fixed rate of $1 million grew to five times the size—while the client’s budget held firm.

Chris Rasmussen, Doxim’s president and CEO, concedes that his company shared the blame for letting things get so bad: “It was crappy project management on both sides.” Still, his firm—a Markham, Ont.- based developer of document-management software—was the only one on the hook for the 12,000 hours of staff time the project ran over plan. “We were getting paid for only about 30% of the hours we spent on the project, and the customer wanted us to keep doing work at that rate,” says Rasmussen. “But I wasn’t going to keep working for 30 cents on the dollar.”

Doxim’s management had a series of discussions with the customer, which refused to budge. Rasmussen felt he had no choice but to fire the client—although he prefers the softer term “disengage.” He still feels he made the right decision, but is frustrated that the parties couldn’t resolve their impasse: “Disengaging from a client is one of the toughest decisions you make, because you work so hard to get customers.”

Like most entrepreneurs, Rasmussen loathes turning down paying work. And in his 14 years heading Doxim, he says about 80% of the time the firm managed to salvage rocky relationships that could have ended as this one did.

Still, you can’t save ’em all. So, how can you tell whether you should try to turn around a troubled relationship or cut your losses and tell the client you’ve decided it’s best to go your separate ways? Here are five key questions you should ask yourself:

Are we losing money on this client?

Stephen Simmons admits that until recently, he, like many chief executives at SMEs, didn’t have this critical piece of information at his fingertips. But the president and CEO of TNG Networks Inc. says that these days, he religiously examines P&Ls for each customer, using Intact IQ business-management software: “At least once a week, I use my dashboard so I can see, for example, whether we have some employee who is spending the entire day servicing a client but whose time isn’t costed in our fees.” Simmons, whose Toronto-based firm provides IT services and support for computer services hosted in the cloud, says that before TNG started using Intact IQ, he would review P&Ls for individual clients in a haphazard fashion. He used to do the calculations himself in Excel, which was time-consuming and produced often incomplete information. Rather than do P&Ls on a systematic basis, he says, “We’d do one only if someone said, €˜These guys are sucking up our resources and our employees are complaining.’ And when it’s just anecdotal, you tend to ignore it or put it off.”

Read: Dump ‘Em! But Do It Nicely…

Now that TNG has P&Ls for each client, it shares them with clients it’s losing money on. Most have agreed to higher rates.

Is it OK to lose money on this client?

Just because your bottom line is taking a hit doesn’t necessarily mean you should stop working for a client. If, for example, your business is still in startup mode and keen to land clients to show what it’s capable of, it makes sense to take on projects that will—at least, for awhile—put you in the red. Even once your company is more established, you may opt to keep working at a loss for a customer that’s of strategic importance to your business. This could be a marquee client that helps enhance your credibility, a customer with connections to partners you’d like to target or a division that can serve as a beachhead to another part of the same company—the one for which you really want to work.

Even if the above considerations don’t apply, you may decide to keep a client that’s costing you money if you have good grounds for believing you’ll climb above break-even before too long. That requires being frank with the client about your need to reach this point. “You need to have an honest relationship in which you can say, €˜We need to nip this in the bud,'” says Simmons. “If you can’t have that kind of talk with a client, the relationship is doomed.”

Are you prepared to play hardball?

Doxim had one client that Rasmussen says expected dream results. “It wanted 12 out of 10,” he says. “And then it wanted a credit from us because we had €˜only’ delivered what it agreed were amazing results—9.5 out of 10.” He says both parties had set unrealistic initial expectations, and he acknowledges that both shared responsibility for the shortfall. But the client wanted Doxim to bear 100% of the pain by working for free for the contract’s remaining 12 months in return for the possibility of a renewal.

“I put a stake in the ground and said we’d disengage immediately,” says Rasmussen. The shocked client caved after deciding it could live with the status quo after all. “We’re now on our fourth renewal with that customer,” says Rasmussen, “and that story has brought our companies together.”

Is the client harming your reputation?

Anne Melnyk says you really shouldn’t put up with a customer whose number you hate to see come up on your call display. “If a client is a bad fit and you’re not excited or inspired by working with them, they’re holding you back from doing your best work,” says Melnyk, a marketing strategist in Delta, B.C., who specializes in advising SMEs. “That has a costly rebound effect. You risk developing a reputation for doing mediocre work that can reduce your ability to attract top-quality projects.”

The collateral damage can go further. Other customers can become restless at being neglected because you’re spending so much time dealing with your problem child. And staff can become demoralized—and even jump ship—if they have to spend significant face time with a customer that expects everything and gives little in return.

At TNG, Simmons says, he watches for clients that ask for a switch in the person servicing them: “If that happens more than once, maybe the problem is on their end.”

Are you headed for a fork in the road?

You can avoid getting into rocky relationships in the first place by sitting down with prospective customers early on to ensure they’re aligned with your goals and values, says Ken Aber, a partner in business consultancy Blueprint Business Architecture. But even this is no guarantee that the two parties will remain a good fit, says Aber, whose Toronto-based firm’s specialties include helping companies identify prospects that are suitable matches for them. Changes at either or both organizations can bring an initially happy marriage to an end.

For instance, if a Canadian client of yours is acquired by a U.S. parent and starts reporting to a new head office south of the border, that may change its values and mission to such an extent that the two of you fall out of sync. “Your gut knows when you’re not aligned anymore,” says Aber. “And that’s when you should fire your client.”

Read: Peer-to-Peer: Should I Fire a Major Client?

Originally appeared on PROFITguide.com