You're Fired! How to deal with problem clients

Every small business has a screamer, a late payer, a Mr. or Ms. Picky for a client. Here's the best way to handle them.

They can come with a wide variety of neuroses. Some like to call 50 times per week; others will take weeks to decide on a font style for their website banner. Whatever their quirks might be, problem clients can cause stress, rampant inefficiency and, worst of all, a possible decrease in your profits.

The first step in dealing with problem clients? Try to avoid doing business with them in the first place.

Willy Bolander, assistant professor of marketing in the Sales Institute at Florida State University, explains that many companies — nascent enterprises in particular — believe that any client is a good client. Guided by this mistaken notion, these businesses take on many clients, ignoring the fact that some of them might cost the company more than they actually return. Targeted marketing is important, Bolander notes, but he additionally suggests considering the other side of that coin:

"We say ‘target market' — who are you going to sell your service to? The other way you could look at that is, ‘Who are you trying to not sell to?' "

Clients must be evaluated before you hire them, he continues. There are key traits to look for, and others to avoid. A good client is reliable when presenting needs and

demands, and readily follows through with information and necessary input. A client who has gone through many vendors in a short period of time, or who seems reluctant or slow in responding to requests, might cause problems later on.

Bolander urges companies not to overlook follow-through, as this can lead to some of the worst ordeals. He recalls problematic clients he dealt with as a client development manager at a start-up CPA firm in Atlanta:

"Some of our problem clients were people who we would call every week for a month or two, asking them to send us their receipts and their banking records so we could get started processing their books for that month or that quarter, and we could never get a hold of them; they would never follow through. We'd get a call from them out of the blue when they're trying to get a loan and the banker says, ‘Let me see your books; let me see where everything's at,' and now, all of a sudden, everything is very, very urgent."

Some prospective clients might also raise a red flag during the first stages of collaboration by exaggerating their credentials, connections and prestige. Mike Ragsdale is the co-founder of TownWizard, a company that helps entrepreneurs establish interactive, mobile guides for their local communities. With a network spanning about 150 communities world-wide, Ragsdale has met his share of problem clients, but one in particular stood out.

"I remember the first time I ever spoke with him, something about him didn't seem right. He was talking a very big game; he supposedly had all sorts of Hollywood connections, and he'd done this, and he'd done that and he was a big heavy-hitter, high roller. I wasn't immediately enamored. If anything, I was a little more suspicious."

It goes back to the old saying: If it sounds too good to be true — or downright unbelievable, then it probably is.

Evaluation should not just be reserved for new clients, either; existing clients should be subject to the same scrutiny if they are causing problems. When it comes to long-term clients, it is crucial to evaluate your relationship and make sure that it is a healthy give-and-take. Bill Hobbs, founder of La Plata Press LLC and author of "The Work Book: How to Build Your Personal Brand and Get Hired," explains, "A customer relationship is like any other relationship. If you allow the customer to just take, take, take, then it's really not a valuable relationship for either of you."

Short-term clients, however, require a different kind of work. In these services, problem clients must be dealt with preemptively, and when these measures fail, the customer service framework must be evaluated and restructured. Denise Daughtry explains that her business, Winterfest of Pensacola Inc., relies heavily upon its Web interface to deal with its clients — tickets and booking are all online-only. For her, the best way to avoid problems with online clients is to make the process simple and the expectations clear (regarding both what the customer receives for the money and the conditions under which the service will be rendered).

Winterfest of Pensacola caters to many clients in various capacities, running trolley tours, as well as charter and parking services, serving about 50,000 customers a year. Many problems with clients stem from unclear expectations. With a website, "You have 10 seconds to get it right," she points out, so she and her webmaster, Josh Davidson, are constantly working to make the website clear and simple.

Her charter business in particular has taught her to explain to clients precisely what is expected of them in return for service. Occasionally in the past, parties aboard the trolleys got too rowdy, causing damage to the trolley and danger to the driver and themselves. Daughtry found that raising the damage deposit, along with being very clear about the level of discipline expected from clients, has largely done away with that brand of problem client.

"We usually sell out everything we do, but we only sell out because we can manage it," Daughtry explains. "One mistake sets you out of the loop in a smaller community."

In the end, the question is simple: Are you getting back at least as much as you are putting in? A successful partnership between you and your client means that you both are working together to extract value from the partnership. While the American service industry has long adopted the mantra, "The customer is always right," this mindset can encourage unhealthy, damaging relationships in the long run, as well as a loss of the mutual respect that is essential in any partnership. Ragsdale points out, "The customer is not always right. You have to look not just at what they're paying you — you have to look at what they're costing you."

When it becomes clear that the partnership is not working, the hardest part is cutting ties. Once you identify your problem clients, it is crucial to deal with them quickly, honestly and directly.

"The best way to deal with a problem client is to deal with them right up front," says Hobbs. There is no use tip-toeing around a client who is costing you time, energy and money. The focus must be on clear, professional communication about the problems in the relationship.

Bolander adds, "The easiest thing to do is to set up a situation where the client can remove themselves."

If you find yourself constantly negotiating and accommodating, sometimes the best approach is to just stop. No more negotiating, no more accommodation. Allow your problem clients to choose whether to cooperate in a mutually beneficial manner or to find someone else.

Bolander recalls culling the problem clients at the CPA firm with this strategy. Many had been misquoted at rates that were far lower than they should have been, and also demanded services that were far outside what their money should have bought them. His plan was to raise their rates to the correct amount and to stop negotiating.

"I got some crazy looks from people within the organization when I told them that was my plan, but customers were actually pretty responsive to that," he notes. "Some of them thought it was strange, but for the most part, they were pretty responsive."

On the same note, if a problem client has been talking about other vendors and options, it is not always your responsibility to stop them from leaving. "Be very direct. If they have a better option, tell them to go with it," urges Hobbs. There is no use trying to maintain a partnership that is not satisfying to both parties, especially if a match can be made elsewhere. You will both benefit in the long run.

Unfortunately, the process of dealing with a problem client is not always so clean. When a client does not remove him or herself, a company will have to initiate a conversation. Ragsdale advises that before the problem becomes truly harmful to the relationship (or at least before it becomes more harmful), try to resolve the issue verbally.

"I think the first thing you do is you have a very honest, friendly but genuine and stern conversation with the client," he instructs. Let the client know you appreciate their business but are concerned about certain points of tension. Describe the issues, and try to find ways to fix them and repair the partnership. This conversation should be thorough and should happen at least twice before breaking with a client. It is also crucial to have records of these conversations. If these measures fail, then it is time to let the client know calmly and professionally, and to recommend some other vendors or options for them if possible.

With problem clients taken care of, the final step is to avoid taking on more. Ragsdale advises companies to consider ahead of time what behaviors constitute a problem client and at what point a customer ceases to help the business.

"Depending on the type of business, it's all about setting up what you consider a problematic client. I would look at it and say that the moment they start costing you more than they're contributing, that's an obvious excuse to get rid of them. If they're also having an effect on your corporate culture, then you really have to weigh that in. It's not just a financial cost."

Categories: Operations