Everyone in the communication world pines for anchor clients, those customers who carry mammoth budgets. People get enraptured by the dollar signs they see floating around these clients' heads, but success is less about budget and more about margins. The money bags attached to a client have very little to do with how much money they'll actually make your company.
Good clients make you money, and they know it. Bad clients don't make you money, and worse, they just don't get it. But you do get it -- and in order to run a successful business, you need to invest in high-margin clients.
Some clients are better than others
For a moment, envision a matrix broken up into four quadrants. Along the vertical axis, imagine you're tracking the maintenance needs of the client. Along the horizontal axis, note the profit margin you'll make from the aforementioned client.
Three of these quadrants will work out for you. The low-maintenance client who brings in low margins is frequently a loyal customer who's pleasant to work with, although he won't ever give you the margins you'd like. His opposite -- the high-maintenance, high roller -- provides such large margins that he's worth it; despite being a pain in the ass. And, of course, there's the Holy Grail of all clients: the low-maintenance, high-margin client. These people will make you happy and put a few extra dollars in your pocket. Collect as many of these as you can.
The danger, of course, lies in the fourth quadrant. You can have a huge client who is high-maintenance and provides a low margin. These people, no matter how notable or wealthy they are, will bleed you dry. Their demands prevent your company from growing and expending effort on other clients, and eventually they'll put you on the brink of disaster. These clients are appealing on the surface, but they will never return your investment.
How can you tell the difference in initial meetings and conversations?
Low-maintenance clients are:
- enjoyable to be around
- transparent in discussing their goals and intentions
- appreciative of what you do
- in it for the long run (not fickle or willing to play you off other competitors)\
- not arbitrary
- willing to pay for expertise
High-maintenance clients, on the other hand, are:
- demanding and in need of ego-stroking
- lacking in communication skills
- constantly holding the amount of money they're spending over your head
- always discontent; they're never pleased about anything
- insistent that they know more than you do
- dismissive or unwilling to hear advice
- holding you responsible for things that aren't your fault
- unwilling to give you credit for your work
Some may fool you at first, but most demanding clients won't be able to hide many of these traits for long. Make sure they'll make you money before you invest yourself in their cause.
Margins tell the real story
Margin is all about how much work you're doing for the client versus how much you're getting paid for the service. It's not simply about the budget the client brings to the table. A client could come in with a million-dollar budget -- and anyone would love to have such a large number to work with. However, the true margin depends on what you're doing for those million dollars.
For a high-margin example, let's assume you run an ad agency specializing in healthcare. Your million-dollar client has asked you to put together a package of services. To determine how much you'd make off this client, you'd calculate using this equation:
(How much you're charging per hour) – (how much your company pays for the direct work) + (average of unbillable and overheads) = profit margin
If you're billing at $400 per hour and they like what you're doing, this is a win-win situation. Every relationship has hiccups, but high-quality, high-margin clients make the difference in how they handle these bumps along the road. These clients will say something like, "We're really enjoying this process, but we have some issues we want to discuss."
A statement like this signals that the amount of value you're adding is commiserate with the amount of value you're getting out of the relationship. This is clearly a high-margin, low-maintenance client.
On the other hand, you could have a less valuable client who carries the same million-dollar price tag. This client fights you on costs, looking for ways to get more value for the same cost. You're always giving them stuff for free to keep them on (or keep them quiet). Your team has extra strategy sessions and staff meetings, on unbillable time, simply so you can figure out what to do with this client.
This million-dollar version is sucking you dry in the work department and not giving you much money in return for the pain. This client has opportunity costs, whether those exist in billing or in finding new clients. It's also a million-dollar account, but you're not actually getting your money's worth.
Sit down, draw a matrix, and place your clients in their appropriate quadrants. Are you surprised by the results? The bottom line is that you need to keep low-maintenance, high-margin clients happy and on your roster -- but you need to do everything you can to fire the high-maintenance, low-margin quadrant immediately. The two in-between quadrants can be taken on as often as your team can handle them, but your mind needs to screen for the best -- and worst -- clientele. Targeting these people early can prevent you from burning the midnight oil for people who won't give you anything but a headache.
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