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 “Happy customers are your biggest advocates and can become your most successful sales team.” (Lisa Masiello)

Anyone who has started a business has had those meetings. The ones where you trade a dozen emails explaining what you do and how you do it, what your rates are and why you are the best, and now your potential client has asked for a meeting. You drive to the other side of town, have a two-hour meeting explaining all the things you had explained before, and get back to the office feeling like you did everything you could, and then you wait. Perhaps for weeks there is no response from the prospect and you wonder exactly where you may have gone wrong. The problem here might not be you, but may instead lie with the potential customer, and all that time and effort you sunk into trying to win their business was perhaps always going to be wasted.

Success for a small to medium business is built on resource management. Those companies that manage to get the most return on investment are the ones that will grow the fastest and last the longest. Getting this return requires not only that you create excellent products or deliver excellent services, but that you do this with the right people – and that includes your customers. Being able to tell the difference between good customers and bad ones is a skill no one starts with, but everyone can learn. Here is a guide to recognizing a bad client before you get too committed.

Recognise what makes a good client

Being able to tell the difference between good clients and bad clients will first require you to know exactly what makes a good client. At a very basic level a good client is one that doesn’t take much of your time but is profitable. The best ones are regular customers as well.

Using your accounting software, you will very quickly be able to see which of your clients are giving you the most return for the effort being put in. While some clients you think of as “good clients” because they always take you to lunch or invite you to company golf days may not be having as much impact as you thought, the numbers will never lie.

Try to see if there are any patterns in the clients that deliver the most value to you. Are they of a particular size? Do they come from the same industry or are they from the same areas? What is it about your service or product that seems to appeal to those kinds of businesses? What are you doing for them that your competition can’t? Are there any other companies like them?

Now try to see if there are any patterns among the personalities who work for those clients and who pay for your services. What positions do they hold and do they have the power to sign purchase orders themselves or must they go further up the chain? Knowing these things will help you to avoid dealing with people who may not have the power at the end of the day to order from you and you might be better served focusing on those who can.

The first impression

In order to find good clients or customers, it’s important that your first meetings with them be as much about you examining them as it is about you selling yourself. Do not be afraid to ask the critical questions of them to gauge how much effort it’s going to take to get your first payment.

Are they simply weighing up options or do they have a project that needs completion by a certain deadline? Why are they looking for a new supplier or service? What happened to the people who used to do it? Clients who bad-mouth the previous company they worked with clearly had an acrimonious relationship and it may be time to ask yourself why.

While they may prove valuable in the long run, clients who are simply looking at options are going to be a lot more work moving forward. You may be called upon to offer advice, or chat over coffee more than you would like, and at the end of the day, the work that earns you money may never arrive. Those with project specifics and needs, on the other hand, are looking for solutions that you can provide and want to be quoted. At the end of the day they have to deliver a completed project and will need your help. These customers are much more likely to not only earn you money now but are clearly actually doing things rather than talking about them, making them far more likely to offer you work in the future too.

But even those with work that needs to be done immediately can come with warning signs. Any small business owner should automatically be aware of the clients who want you to “prove yourself” or “do a test job for free.” Filling your time with discount seekers ultimately means you can’t take on work for those companies that would actually want to pay you and anyone who asks you for free or heavily discounted first jobs may not value you or your time and should perhaps go immediately onto the bad customer pile.

This is a good time to also be cautious of those who refuse to work with a written contract. Anyone who actively does not want to sign on the dotted line likely has a very good reason for avoiding commitment and usually, that reason is that they don’t want to pay what or when they say they will. Remember that although in our law most verbal contracts are binding, only by reducing your agreement to writing can you minimise the risks of misunderstanding and dispute. If you insist on a contract and they suggest you don’t need one, rather walk away.

Watch out for red flags in the first few weeks

You are through the initial introductions, have quoted for work and after negotiation have had your quote accepted, in writing. Now it’s time to buckle down and do the job. This might feel like the time when you just want to focus on delivering the best work you can, but it’s also a time to be wary. Watch the client’s behaviour carefully over this period because it’s at this stage that the first signs of an imminent bad relationship will start to raise their heads.

Does the customer respect your time or do they want you to be available 24/7? Are they calling you after hours, or looking for constant updates on your work? Are their deadlines reasonable or does everything need to be done yesterday? Do they micromanage you or nit-pick your work? People with high demands aren’t always problematic, but when it crosses over into your personal time, and they think nothing of calling you late at night to hash out tiny details then you know they are already becoming more effort than they are worth.

You should be equally cautious of those clients who work the other way around as well. These clients who don’t respond to your emails or take weeks to get you answers to important questions. Clients who can’t be bothered to live up to their own project timelines will also struggle to meet your payment deadlines.

The third thing to look out for is those clients who are constantly adjusting the scope of the project. Scope creep starts out with asking you for a few small unpaid favours and slowly slips into the entire project taking on a different life to what was negotiated. Clients like this are usually more disorganised or inexperienced than dishonest but as the project grows and expectations around your workload increase, so should your remuneration. Don’t be afraid to speak up and ask for an adjustment to the contract.

The final red flag is if clients come back to renegotiate your rates for a job that’s already begun. Negotiating up front is normal and healthy, but when they don’t want to accept what has already been agreed or want to fiddle with the details it’s time to reconsider. This renegotiation technique is a sure sign they can’t really afford the project and at the end of the day they’re going to be someone who is likely to leave you unpaid.

At any stage…

So far all the issues that have arisen are probably excusable or can be overcome if the compensation is good enough, but there are some signs that are just too dangerous to ignore. If any customer of yours ever does any of these things it is far better for the long-term survival of your company to immediately terminate any further partnerships or projects and rapidly move on.

The first of these is when they ask you to copy brand logos, ideas or products from a competitor. Anyone willing to ask this of you neither respects you nor your company and certainly does not respect their competition. Being dragged into tacky business projects such as this will only end in your company being made to look bad as when they are inevitably caught, they will pass the blame squarely on to you and your new brand.

This warning goes double for any client who asks you to ignore the law or break it outright. Examples can range from the small, such as when you are in construction and they ask you to just go a little outside of the building code to the large, such as when they ask for kickbacks or offer incentives to work with specific companies. Any form of corruption or criminality will eventually not only ruin your company but could also ruin your life.

If you have been in business for any small amount of time you are bound to have come across some people who tick some of these boxes and might be reliving the trauma of projects you would rather forget. Now is the time perhaps to head over to “Clients from hell” for a wry laugh from these people who may just have had it a little worse than you.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

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