Why and how to fire bad clients

April 11, 2016 –  By Ben Gandy |

In the landscape maintenance field, clients are like stock portfolios. Some yield great returns; others don’t. In either case, you’re spending resources—including crew time, equipment use and management attention—to keep them. Just as you should assess a stock portfolio periodically, you should assess clients to ensure you’re allocating resources to their best advantage.

Once a year, list your clients, and assess them on a matrix, rating the following.

  • Revenue size. Generally, larger accounts are more valuable. Small accounts can be difficult to profit from. Even if they’re profitable, the total dollars generated might not be enough to contribute significantly to your overhead.
  • Gross profit. This number is the profit remaining after the materials and labor costs. The higher the gross profit as a percent of the revenue, the higher the rating.
  • Extra sales. Sales above the base contract make clients more valuable. Generally, there’s little or no competition on these sales, which should be profitable. The more extras, the higher the rating.
  • Location. You don’t make money driving; you just incur risk. Closer clients rate higher than distant ones.
  • Connectivity. Rate how connected your clients are to other clients or opportunities. The greater the connectivity, the higher the rating.
  • Ease of doing business. Clients who are unreasonable or abusive suck a lot of energy and time out of you and your employees. Your efforts may be spent better elsewhere.

The clients who score high on the matrix mean the most to the business. Everyone in your organization should know who these clients are. If keeping them happy requires a concession, favor or special service, do it. They’re the heart of the business. Their continued loyalty and referrals will go a long way to help the company grow.

The clients who score low on your matrix need to be scrutinized. Ideally, you’d like to identify the low-rated clients and develop a strategy to remove them from your list to free capacity to take on new, higher-rated clients. This process requires analysis and planning.

First, understand the overall gross profit represented by the lower-rated clients. You may have identified clients you’d like to replace, but if they contribute a significant amount of gross profits to the business, trim the list or don’t act on these clients until you’ve sold other work to replace the gross profits.

Second, consider the clients whose low ratings are primarily related to profitability. Before doing anything else, visit the job sites with the crews in action, and assess whether the problem is price or production. It could be that the crew has a poor understanding of the scope or a poor approach to the job. If production isn’t the problem, consider a strategy of significant price increases during the next few seasons to get them priced right. Remember, it’s not the client’s fault if the job was mispriced. While you can’t perform at low margins forever, you might owe the client time and consideration to get him where he needs to be.

Third, protect your reputation. Sending a cancellation letter blindly to your low-rated clients risks damaging your image. Instead, consider the following.

  • If you’re on a one-year contract, consider a nonrenewal. Wait for the end of the contract’s term, then approach the client and let him know you won’t be renewing it. Thank him for his business, and let him know about your inability to renew your service because of the economics and strategies of your business. Note that it has nothing to do with your relationship.
  • If you’re in an evergreen contract with no clear renewal date, send a cancel notice with a stipulation that you’ll work for another 60 days, which provides plenty of time for the client to find another contractor. Again, thank him for his business, and let him know you appreciate the relationship, even if you can’t continue the business.

Breaking contracts midseason isn’t advisable. In rare circumstances, it might be necessary, but it puts you in legal and reputational jeopardy.

A price increase might seem like a way of weeding out low-rated clients, but remember increases won’t change the job size, location, spending habits or the ease of doing business. You have a fixed amount of capacity, so before spending money on more assets, ensure your crews, equipment and managers are servicing clients that serve your business.

Ben Gandy is a partner at Envisor Consulting. Reach him at bengandy@envisorco.com.

Source: https://www.landscapemanagement.net/why-and-how-to-fire-bad-clients/

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