Watch out for bad clients

If your profits aren’t coming from bread-and-butter design work it could be time to re-evaluate your clients, says Paul Foulkes-Arellano

There is nothing more exasperating than watching a good client go bad. There are many reasons why clients suddenly go from being profitable and pleasurable to draining and daunting. It happens to every creative business, and I think it is happening more frequently to consultancies of all sizes.

What has accelerated this trend? And is there anything consultancy owners and employees can do to stop it?

Bad clients use up a lot of company resources, like to play God, stifle creative ideas that are commercially viable, feel they could easily run the project themselves, behave unpleasantly and aim to pay lower fees project by project.

All of us live with clients which display a couple of these traits, but if clients exhibit all six, they can destroy profitability and morale. Increasing external and internal pressures appear to be turning more clients bad.

The hardest thing to do is to identify these characteristics in clients which may well have been clients for a long time and have a personal relationship with members of the consultancy team. Often when clients are new, both sides are judging the relationship and trying to make things work. Once a client is well-established with a consultancy, – and perhaps represents a considerable chunk of turnover – bad behaviour is often overlooked, and excuses are made. ‘It’s the way Danny’s always been. He’s got a design degree, so he does have a point of view.’

Consultancies need to analyse client profitability constantly. Even consultancies with sophisticated cost analysis systems have to take a long, hard look if they are about to part with a client who signs off invoices worth hundreds of thousands of pounds a year.

A consultancy owner in Latin America once told me: ‘There are clients for fees, and clients for fun – no client can be neither.’ This is very true – my concern is that many clients are becoming ‘just for fun’. Profits are coming from strategic work, not the bread-and-butter design work that most consultancies live on, and there are many consultancies veering towards insolvency, as bad clients become rotten.

Many relationships end when the final straw is broken when a client reaches stage 17 of a minor project or the invoices start to build up, but action needs to be taken earlier.

Design businesses are particularly bad at facing up to their clients and talking frankly about client-servicing issues. There are ways to make a client good again, but it’s about sharing details of how design businesses run, rather than skirting around the issues.

Many of our foreign clients are horrified when I explain the salaries and rent that we pay, but it helps them understand how our fees are calculated. On the whole, they are intelligent business people who want to understand how we can work best for them. This ‘open book accounting’ approach has helped me sustain fees and aided our cause.

Once clients are identified as ‘bad apples’, decisive action needs to be taken. The account team needs to be appraised of the consultancy stance as they may be able to take action to steer the client back towards the path of righteousness. I can think of several account directors who have spent months rebuilding a relationship into a profitable and exciting one, and then gone on to be great friends with the client.

However, if this is not going to be then consultancies need to reduce the level of outstanding business and invoices to a minimum and look to shut down the relationship in the best possible way. I have written such beautiful farewell letters that ex-clients have gone on to recommend us to other clients. Farewells must be fond, unless you are taking legal action.

Legal action is a final recourse, but there are many instances where bad clients require legal action. Clients using your designs without paying or piling up huge debts are probably the most common reasons to bring in the lawyers. I have seen so many consultancies go under, because they are too polite to chase unpaid debts and demand decent fees.

The key to all this is to move onwards and upwards. Loyalty is a marvellous thing, but clients that represent less than 5 per cent of your annual profit turnover could always be regarded as chewing up valuable time you could use to develop your bigger clients.

In these times of tighter margins my main advice is this: look out for the warning signals and don’t be afraid to confront bad clients head-on.

Paul Foulkes-Arellano is managing director of Wren & Rowe

Identifying bad clients:

• They use up more company resources than budgets allow

• They play God for no reason

• They stifle creative ideas that make commercial sense

• They feel they could easily run the project if they were on the consultancy side (and probably bring some fresh ideas into the creative team)

• They are unpleasant, creepy and vindictive

• They believe fees can get lower project by project