It’s incredibly difficult to end a relationship with a client, but sometimes it just has to be done.
Firing a customer is one of the least enjoyable aspects of being a leader. You know it will be an uncomfortable conversation. You know it will take time and cost money to find and onboard a new client to take their place. You also know if you don’t do it, you’re putting your business at risk.
For insight into when and how to fire a client, we spoke to Aly Saxe, founder of IrisPR.
When it’s time to let a client go
When they’re costing you too much, Saxe says. They could be costing you money, requiring so much service that they cut into profit margins. Or they could be costing you time, perhaps more than what was originally agreed to. “All the time you’re spending with them you’re not spending on good clients and new business development,” Saxe says.
Worst-case scenario: They’re costing you people and morale. A truly toxic client can kill employee satisfaction and that negativity can seep into other areas of your business. That alone will cost you far more than any revenue lost from walking away.
Sometimes these issues can be solved with a conversation (or three), so that’s always worth a try. Saxe says that these conversations can actually be a good opportunity to grow an account, as sometimes a client doesn’t realize they’re asking for more than what’s reasonable or for things outside the scope of your work. But if you’ve already had a talk with them and they’re still being difficult, you’ll be better off finding a new client who will respect your team and your process.
Learning when and how to professionally break up with a client is a valuable skill. Just remember: Though it may be awkward, you’re doing what you need to do to propel your business forward.
What to consider before you let your client go
Your Company Revenue
Of course, the biggest consideration is loss of revenue. You have to think about what removing this client will mean for your company. Will you have to lay off an employee, or tighten the budget to avoid that? Saxe says it’s best to assume that 20 percent of your revenue could walk out the door at any given time. To prepare for that, she keeps an emergency fund of cash on hand.
“It’s a real luxury to be able to remove a toxic client and not have it destroy your financial statement,” says Saxe. However, it could pay off in other ways. “Employees will also respect you for it because it tells them that you value them and their happiness at work.”
You should also consider whether the client you’re letting go will try to damage your reputation in the community. Saxe was only in that position once, and she got around it by calling all of their mutual colleagues. “I didn’t tell them what happened, I just let them know that this person may be saying some unkind things about me and my business, and to please not take what they say at face value. Turns out this person had a really bad reputation and no one was surprised,” Saxe recounts.
Be#fore you take action to fire the client, check your contract with them. (You did get a contract, right?) Many contracts have the ability for either you or the client to cancel with some amount of notice, typically 30 days. That means that after you give written notice of the cancellation, you may have to continue working with the client for a month. Figure out when would be a good time in your project and payment cycles to invoke that.
Also, check the exact contract term. Is there a logical endpoint for your relationship already on the horizon? Depending on how far out that date is, you could decide to complete the contract and just decline to renew it. The end of the contract provides a perfect opportunity to discuss wrapping up your business dealings with the client.
How to break the news
So you’ve decided it’s time to break up with your customer. How to fire a client nicely? Do it by phone, and remain professional and calm as you explain the situation matter-of-factly.
Be kind, but don’t lie to your client about the reasons for the separation. It doesn’t help you or them if you aren’t forthright. Plus, lies have a nasty way of getting around. You don’t want this client anymore, but you definitely want to keep your good reputation.
Not sure what to say? Sometimes a template can help you organize your thoughts. Check out these sample scripts from Nick Reese for ideas on what words to use.
After a client break-up call, Saxe will usually follow up with an email recap. That way, you and the client have a written record of the end of the business relationship.
If you want to draft something more formal, consider sending a termination of services letter to your client after the call. Like your phone conversation, the client termination letter should be concise and factual. It can go into detail regarding when services ended or will end, any outstanding issues regarding work in process, unpaid invoices, transferring client records, and items requiring follow-up or completion by the client. Be sure to save a copy for legal purposes, just in case.