CXO

Evaluate agreements with clients to grow your business

Sometimes, the seemingly perfect agreement between you and your client turns out to be a bad fit. How can you decide when it's best to renegotiate the scope of the work or release the client? Here's what several consultants recommend.


It was the perfect client setup for Valentina Guazzoni: a Web development project she knew she could handle for a small company that would pay her a monthly retainer.

But seven months after the project was to have ended, the New York-based consultant found she was spending too many hours each month making minute changes to the Web site. Communications between the parties had deteriorated, resulting in the firm's office assistant e-mailing directives to Guazzoni.

Realizing she had become another pair of production hands instead of being valued for her development, design, and marketing expertise, Guazzoni did the unthinkable: She fired her client.

At a time when economic uncertainty reigns, Guazzoni's decision runs against economic survival instincts. I asked consultants and business growth strategists what criteria they use to evaluate a potential client fit and how to shed clients that do not meet overall business goals.

Will the client help grow your business?
While some clients are taken on to help pay the bills, and may provide only partially satisfying work, getting caught with too many can run a business into the ground, according to Aldonna Ambler of Ambler Growth Strategy Consultants, Inc.

"When you start to say you're everything to everybody, all you are is very busy and very broke, because marketing-wise, you're not very memorable," said Ambler. "You've done a lot of work for people, and in many cases, no one is pleased."

Several years ago, Lilian Rojas of the Rojas Group faced a similar situation that was hindering the company's growth. Too many of its 30 projects did not utilize the IT consulting firm's best talents, and had made the organization cumbersome and unfocused.

Recognizing her consulting company was spread too thin, Rojas and her partner decided it could attract fewer, bigger, and better-fitting clients, and at the same time, scale back its internal operations and actually grow the business with long-term client relationships, instead of project-by-project.

The group identified the "ideal" client it could serve, then dug through its client list, analyzing each one, asking:
  • Does the client require the services we can best provide?
  • Can the client afford to pay for our services?
  • Is this client always seeking the cheapest, quickest solution?
  • Does the client value a high level of service and expertise?
  • Does the client view the role of IT strategically? Or is it treated haphazardly?
  • Can we establish a long-term relationship?

As a result of the evaluation, Rojas and her firm found that 50 percent of their clients did not meet their growth criteria, and within 24 month, the company had scaled back to working on between five and six projects at a time for a half-dozen clients.

"Now we have four full-time people, and we're doing more business than we were with 10 employees," said Rojas. "I found we could take care of clients with a lot less staff and make more money."

Does the client's corporate culture fit with your firm?
The most important question Rojas' firm evaluates when deciding to work with a client is whether its corporate culture is a good fit with the consulting company. The key for the company is a situation in which both the client and the consulting organization measure value in the same way. That shared value includes an explicit definition of quality and the effort it takes to reach it.

With current or potential clients, a level of compatibility and shared value is essential, according to entrepreneur coach and consultant Andy Birol of Birol Growth Consulting. For Birol, a "relationship check" is a key factor in determining whether a client/consultant fit will be successful. He suggests answering the following questions:
  • Does the decision-maker communicate like you do?
  • Does he/she share some basic values with you?
  • Does the company make decisions like yours does?
  • How are disputes resolved? Are they resolved?
  • Is it a conservative or progressive environment in terms of risk-taking, communications, problem solving, partnering?

After her experience with the client who treated her as an employee instead of a consultant, Guazzoni began honing in on indicators with potential clients to help her identify the company's culture. She says she watches how employees and managers interact, and keeps an eye out for controlling supervisors.

She also looks for signs of a team-like atmosphere, and asks questions to determine the client's knowledge level of Web design and development, and its expectations of her work and her role. Already this year, Guazzoni has turned away potentially problematic clients when the match does not look promising.

What is the cost of doing business with the client?
In addition to the billable hours you generate on a client project, the opportunity costs (other activities you could be doing with your time) and the time it takes to manage the client must be calculated, Ambler said.

Attracted by fewer layers of management and the lure of a predictable, monthly retainer that covered her expenses, Guazzoni's ex-client presented the opportunity to help a smaller organization than she would normally handle.

But as the project wore on, scope creep dragged it out twice as long as anticipated, prompting Guazzoni to do a cost analysis of her work with them. She tallied up the billable hours for each month, and realized that the monthly retainer, which covered 15 percent of her total income, did not actually cover her standard hourly rate.

More importantly, it was hindering work with her other clients, and was fast becoming something she no longer enjoyed.

"I got to a point and asked, 'Is this worth it?' It's giving me a financial stability of some sort, but it's not giving me any kind of pleasure, and it's preventing me from going out and getting any new business," recalled Guazzoni.

Once Guazzoni was no longer working with the client, within a week, she had pitched and won another client that was a better fit. "I got to the point where I realized I might have to lose money initially, but it will free me up in the end to get bigger or better opportunities," she said.

Can you reframe the work?
Instead of turning a potential client away or phasing out an existing client, you have the option of redefining the project so that the work best utilizes your talents and skills and helps your business in the long run.

While projects broken down into phases are common, to prevent projects spinning out of control, Ambler suggests adding language to client contracts that requires that a client review by the consultant will occur after the first month. The review, a practice she used with her own clients when her firm consisted of 87 consultants, is to assure the original project assessment matches the actual work being done. From there, you can determine whether the project needs to be redefined.

Another example of changing the scope of a project to better meet a company's needs is when Ambler landed a $100,000 contract with AT&T in her early days of consulting.

Because she realized the scope of the project was beyond her immediate capabilities, and that by her own estimation, it would require her to become a firm that earns $500,000 a year, practically overnight, she set out to rework the deal. (According to Ambler, a company should not rely on a single client to provide more than 20 percent of its total earnings.)

After calculating that she could garner the resources to become a $300,000 firm by the end of the year, Ambler scaled back the deal to $60,000, calling it “phase one” of the project. She hired additional consultants and used the relationship with AT&T to garner similar-level clients.

Since Ambler took on a part of the project she knew she could handle, she proved her capabilities, she said, and wound up doing a total of nearly $400,000 in work for the telecom giant.

Can you make a referral?
If it becomes clear that working with a client or a potential client is not feasible, it can be beneficial for your future relationship to refer other qualified consultants and vendors; it can also be an opportunity to fulfill your responsibility to a good-standing client.

As clients were weaned from the Rojas Group at the end of projects or at other natural breaks, Rojas says the company took great pains to set up meetings with new, potential consultants to assure the client's needs were fulfilled.

During this time, one of Rojas' clients was so comfortable in its relationship with the IT firm that it had continually hired it to perform services that less-expensive, production-oriented consultants could complete. Because such duties no longer fit Rojas' business model, and so that the client could receive the services at a reduced rate, Rojas set up several other consultants to perform the work.

The result was that the client turned to Rojas as a project manager of all the consultants—something at which the company was more skilled—and worked with Rojas when it encountered major IT decisions. As Rojas transitioned other clients to different consultants, many returned to the company seeking strategic IT advice.

"It positioned us nicely," Rojas said. "For one, we had a client that was really happy with us. The amount of work they needed to get done wasn't necessarily what we wanted to be doing. But helping our clients think strategically about how to implement technology is always something we're interested in."

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