Toxic client relationships: How and when to disengage

by Kristy Gusick, Professional Services Marketing, LLC | November 2018 Footnote

Editor's note: Updated Oct. 30, 2018

Not every client is a good client.

In a world where time and resources are finite, this is a mantra worth repeating. Because your firm can only serve a certain number of clients well, why not serve the ones who will also serve you? These are the clients who make your investment worthwhile, rewarding you with prompt payment, regular referrals and meaningful work. Bad clients, on the other hand, can drain your time, money and even talent.

No matter how bad, though, firing a client can be tough.

The problem of what to do with toxic clients plagues many CPA firms. And, in fact, it can be a major cause of burnout for mid-level or senior accountant-level staff. These individuals tend to bear the brunt of clients who are too high maintenance for lower-level staff, and too unpleasant for partners. And, when these clients are unappreciative on top of it all, it can create a toxic working relationship.

If you or your firm is struggling with this dilemma, know you're not alone. Ignoring it -- or hoping in vain that bad clients will turn over a new leaf -- can put your firm at risk for losing hard-to-replace talent and jeopardize its profitability and growth. Here's how you solve and prevent this problem within your firm.

Identify your A-level clients and target prospects

The first step in determining which clients are toxic to your firm is to rate your clients. The rating system you use should reflect your firm's values and goals, and it should rate clients both objectively and subjectively. For our clients, we recommend using a report-card system of A, B, C, D or F.

Although the Pareto Principle (or, the 80/20 rule) dictates that 20 percent of your clients are responsible for 80 percent of your firm's revenue, look beyond the dollar sign to each client's realization rate. Some of your highest-billing clients may also demand the most amount of your staff's time, resulting in minimal -- or perhaps even negative -- profitability.

Then there are the subjective characteristics to weigh. Is the client responsive? Are they receptive to billing? Do they offer interesting, engaging work?

Rating your clients gives you a clear picture of which ones are truly good -- or bad -- for your firm. It's important to revisit this exercise each year, ideally during the summer or slower months. With up-to-date client ratings in hand, you can determine how much time to spend on meetings and appreciation for each client, and which clients should be shown the door. You may even find that certain clients you had assumed were A's actually rate lower on paper.

Say 'goodbye' to clients who don't serve you

Your lowest rated clients -- those who scored a D or an F -- are the ones who could be doing more harm than good to your firm. For this reason, consider letting them go. But this is the tricky part, right? How do you say "you're fired" to a client?

Here's the short answer: You don't. Internally, I've found it helps to avoid the word "firing" due to its negative connotation. People typically don't enjoy "firing" someone, and your staff members may be tempted to put it off. Instead, call it "off-ramping" or "disengaging," or anything less charged -- and have a process for making it happen.

An example of a client off-ramping process might be to send a list of F-rated clients to your partners and request their approval of the status. Then, the appropriate partner would send a notice of probation to F clients that includes the reason for probation and lists next steps. This should be done very carefully and with thoughtfully prepared scripts and letters.

It helps to have referral sources (i.e., other CPA firms or solo accounting professionals) available to provide to your off-ramped clients. In many cases, the client isn't inherently toxic; it's simply that the individual or business wasn't a good fit for your firm, and you want to make sure they'll be well taken care of in the future.

Prevent your firm from working with toxic clients in the future

In most cases, toxic clients show up on your roster because they weren't well-qualified prospects to begin with. This can happen when you don't ask the right questions before an engagement begins. What questions should you ask? It comes back to your client ratings. Knowing your ideal or A-level client, as well as what constitutes an F client, can help you better discern which types of clients to serve.

For instance, if your ideal client is someone who is comfortable with a consulting relationship and will listen to your advice, your qualification interview might go something like this: "Tell us about your relationships with other professionals. What could they be doing better?" If the prospect is dismissive of professionals or doesn't currently work with one, will this person really be a good fit? Teaching your staff to ask the right questions to qualify prospects can help to keep toxic clients at bay.

Stay patient and positive

In my experience, the whole process of rating your clients, developing and implementing an off-ramping strategy, and training your staff can take up to two years. In other words, it doesn't happen overnight. But don't get discouraged! Instead, focus on the potential results: better clients, happier employees and increased profitability. I think we can all agree they're worth it.

Kristy Gusick is a partner at Professional Services Marketing, LLC. She has more than 20 years of experience helping professional services firms with business development, marketing, sales and coaching. You may reach her at kgusick@psm-marketing.com or 651-592-4662.