How to identify ‘bad’ clients
Here’s a simple exercise we do to help identify ‘bad’ clients. We did it regularly in our studio and now do it with studios we mentor. It always delivers valuable insights, especially if you repeat it a couple times a year.
How to assess each client
There’s two ways you can approach this:
One of these is not more important than the other … life is too short to be tied to a profitable client who’s an @rsehole. Similarly, most of us aim to run for-profit businesses, so it doesn’t matter how personable or socially-minded a client is if they are not profitable. (Unless you acknowledge they are a pro-bono client – that’s a different subject.)
Score each client out of 10 for each of the following questions:
- Are they easy to work with? Do they brief well? Are they receptive to ideas? Are they responsive or do they demand short deadlines then disappear?
- Do they pay their bills on time?
- Does their product or service fit your values?
- Do you like them? Do you look forward to talking to them?
Run a profitability report on your client. It may be called different things in different software systems — maybe it’s mix of a sales report and a time-sheet report, but basically you are looking to identify:
- total annual sales to the client
- total hours spent servicing the client equated to dollars: that is, the number of hours spent on each project x your inhouse hourly rate
- gross profit from that client
The report will look something like this:
This report will help identify clients who fill the studio with work but are not very profitable. It can also help to understand why a studio can look and feel busy while also having a cashflow problem.
What to do with the information
- Generally, clients with a negative gross profit are the ones who are unprofitable. For those who scored low in the subjective scoring, think seriously about ending the relationship.
- There may be a client who brings in high revenue but ‘costs’ a lot to service and therefore not profitable. If they are good to deal with, investigate where the hours are spent and if they can be serviced more efficiently. Delve deep into each project to identify where time is spent but not invoiced. Is it in the briefing process, or the delivery, or the servicing? Is there a problem in estimating or are they being over-serviced?
- The clients who are not only good to deal with (and scored highly in the subjective questions) and are profitable are the diamonds. Protect and nurture these clients by being proactive and responsive.
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These articles also talk about hourly rates and profitability:
- How to estimate for profit
- When is a good time to increase prices
- Why you shouldn’t share your hourly rate
- Designers adding value
- $150 Job pricing ecourse
After 30+ years running a graphic design firm, I pivoted from client-focused projects to consult to the design industry. Now with the Design Business Council I use my experience, and research, as a design mentor and coach. I help designers build robust, sustainable businesses, and help businesses integrate, and profit from, design.
The core of the DBC is the building a design community – over 85% of designers work in businesses with less than 5 employees, many less than 3. That means designers don’t have the same support network of other professionals. The DBC’s solution is supplement paid gigs with research, mentoring breakfast meet-ups, informative UNseminars and practical workshops in Melbourne, Perth and Sydney.