When and How to Dump Bad Clients

You sent the bill, but with trepidation. You just know this client is going to nitpick various line items. Despite negotiating you down to a very low rate, they continue to ask for more and more concessions. When do you draw the line and fire that client? What about the client with questionable ethics, or the company with abysmal time management that leads you and your staff to pulling completely unnecessary all-nighters? At what point do you decide that poor compensation, hassles or other factors are just not worth it?

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Every law firm, from solo practices to AmLaw 50 firms, struggle with the twin dilemmas of how to manage clients effectively, and how to fire clients when the relationship is not working out. Having more clients gives both you and others the impression that you have a thriving practice. Consequently, letting clients go can seem counterproductive.

It is very easy to let fear determine your choices in this area. To find a fresh perspective, start by getting clear on the numbers. We have just completed the third quarter. Is your practice on track to meet your 2016 financial goals? If not, take a good hard look at how much profit is coming from each client, and how much of your time and your associates’ time you’ve had to write off. If your existing clients are not as profitable as you would like, or if you are spending all your time servicing bad clients at the expense of going out and developing new ones, it is time to get serious about solving this issue.

Here is an exercise that I sometimes do with clients to help them figure out which, if any, of their clients really ought to go. First, make a list of the qualities that make an ideal client. This is subjective. There is no right answer, but a sample list might look something like this:

  • Pays on time
  • The fee for my services is satisfactory
  • Doing business with this company will increase my visibility, credibility, etc.
  • The client is in my preferred niche
  • We work well together
  • Most of the work can be delegated to my staff.

Next, make a chart and rate your best three clients on a scale of one to five, assessing how well each of them meets these criteria. Then rate three of your least favorite clients. See the chart below as an example. Ultimately, you might want to rate all your clients, but starting with these six at least provides a solid starting point. Once you have created your own chart, you will start to see patterns. If the same problems show up with a majority of clients, you may need to revise how you set up or manage your client relationships. Sometimes, problem clients can become much more cooperative once you set clearer parameters. In other cases, you may find that you have one or more clients that score as obvious losers. On one hand, the results you get by going through this exercise may not be terribly surprising; but on the other hand, seeing it in black and white helps to bring home the contrast, and helps motivate you to do something about it. This exercise can help you to clarify priorities, figure out which areas require improved communication, and determine which clients you are simply better off without.

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While this tool is designed for insight, of course, the real results don’t come without action. Even once you have done the math and concluded that you really would be better off without a particularly difficult client, you still may be hesitant to fire that person or company. No one enjoys such conversations, and virtually everyone avoids them. The good news is that it is rarely necessary to actually fire a client. Usually, the focus is on renegotiating the relationship with the knowledge that if the client is not willing to meet certain minimum terms, you will let them walk away without regrets.

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The first step is to define very concretely what changes would be required for you to keep working with the client. For example, if a client is consistently difficult and demanding, you should decide what rate, if any, would entice you to continue serving with them. Explain to the client that you are raising your rates and offer an explanation. Maybe your rates were below market before, or maybe you have hired more seasoned lawyers to handle the client’s matters. People tend to be more accepting of significant rate increases if they are delivered with a credible rationale. Either way, you win. If the client accepts, your income increases. If the client decides to leave, that is fine too, because you and your staff will have more time and energy to put into attracting the right sort of clients.

Sometimes money is not the issue, or no amount of compensation is sufficient for the problems caused by the client. The basic principal described above still applies.

For instance, if the issue is communication style or expectations, you could tell the client that you have decided to prioritize work-life balance, and you will no longer be able to provide 24-hour turn-around or respond to emails between 6 p.m. and 7 a.m. If they are willing to work with you on those terms, great. If not, you offer them a referral.

What about those cases that are simply not profitable for you? Tell the client that for business reasons, you have decided to focus on a particular niche (that they, unfortunately, are not in). Business people understand this rationale. They know that focusing on core competencies can lead to greater profitability and help to dominate a market segment. They are unlikely to be too offended, especially if you accompany this explanation with a referral to someone who does specialize in their subject matter.

I’m not suggesting that you lie to clients, but rather that you carefully reexamine what works and what doesn’t work for you and your practice, and then present it to the clients as what it is — a business decision. This minimizes the likelihood of them taking it personally, and increases your commitment to retaining these new standards going forward.

About the Author

RappaportAnna Rappaport is a former lawyer, and the founder and principal of Excelleration Coaching, an executive coaching firm for lawyers based in Washington, DC. She is a member of the Law Practice Today Editorial Board. Follow Anna on Twitter @CoachAnnaDC.

 

 

(Feature Image Credit: ShutterStock)

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