How to identify the good clients (from the bad)
Unfortunately bad clients are not easily identified. They are not labelled, infact most bad clients look and act exactly the same as a good client. They write briefs, they commission work and they pay on time. On the surface they seem like a good client, but just a little bit of analysis may show all is not as good as it could be.
This week we’re sharing a tool we use with creative businesses to identify valuable clients – those worth further investment.
Doing the analysis
Here’s a diagnostic tool we use with many creative businesses. At first glance our client analysis tool is a simple spreadsheet, but when completed it can inform many important decisions.
A rundown of the spreadsheet:
Column A: Clients.
No surprise here, it’s just a list all active clients.
Column B: Client sectors.
Tag each client as a specific industry group like finance, healthcare, education etc.
Why: Because sorting the spreadsheet by industry sectors will identify your skillset pillars.
Do you get the majority of your work from just one sector? (AKA are all your eggs in one basket? We suggest spreading your skills across three or four sectors for diversification.) Is one sector more profitable than another? Do industry sectors have any relation to budgets? Are budgets (revenue) large and therefore projects more complex but profits are low? If so, it’s a red flag to investigate deeper. Pull profits for individual jobs – perhaps one or two skew the figures. If a majority of the projects aren’t returning a fair return (we’d suggest 30% profit is achievable) across the whole industry sector, further questions need to be asked.
Column C – F: Revenue
Use your studio project management software to document quarterly revenue from each client.
Why: Quarterly revenue identifies cyclical clients. Those who are quiet for six months only to pop-up with urgent, seasonal work. Forewarned is forearmed. This information means you can be proactive rather than reactive. It gives you time to approach clients with suggestions/recommendations that can be implemented before an urgent deadline means the job just has to be done now. This information can turn a troublesome, demanding contact into a grateful, organised client who gets better service and deliverables.
Why (part 2): The total revenue column will identify the clients who bring in the majority of the money. It sounds simple but we’ve seen an example where a ‘small’ quietly-efficient client commissioning many low-budget, easily produced and quick turnaround projects turned out to be one of the highest billing clients for a business. While the studio was focussed on the large name brand making high demands on designers and deadlines, this fuss-free client was flying under the radar. It wasn’t until the numbers were crunched the impact of their total projects and their value to the business was clear.
Column H: Total profit.
Rule 101 of finance, never confuse revenue with profit. A rookie mistake often done. Profit is the money left after costs are deducted, including an hourly cost rate for all work.
Why: Some clients can make studios/agencies ‘busy’ but that busy-ness does not translate into profit.
It could be because of work redone due to bad or incomplete briefing.
It could be scope creep.
It could just be the client has champagne tastes on beer budgets.
It could also be a short-term considered loss to get entry into a client sector, or on the panel of a large brand. Just be mindful it’s not sustainable, and it’s not ‘fair’ to those clients who are funding the shortfall.
Clarity leads to understanding
Column I: Number of jobs
Calculate the number of jobs done for the client.
Why: This is an inexact science but it’s interesting exercise to divide total revenue x number of jobs and/or total profit x number of jobs. It relates to ‘busy-ness’. Understanding when a specific client or client sector is prone to overtake the studio with many small projects can inform hiring and skillset decisions. Likewise a cyclical client only delivering a few larger projects may be a prime target for more work at other times of the year.
Column J: Type of work
Like client sector, documenting the ‘type of work’ from a client can uncover some gems.
Why: Perhaps you’re a ‘digital’ agency – and there’s a strong argument that label is no longer relevant when most creative businesses are delivering across all channels; but I digress – delivering mainly apps to one client sector but actually not one website? Perhaps you have great internal stakeholder campaign experience in one client sector and that skillset may be transferable to another, related client sector? All great insights.
Understanding leads to knowledge
Identifying the good clients from the bad
This simple spreadsheet is easily populated using reports pulled from your studio management software. And it’s quick, once you have the figures, the total exercise might take just an hour.
It’s an hour well spent because the results will inform both large and small, internal and external decisions such as:
- the client sectors most valuable, and those that are not
- clients who fill the studio with work, but not money.
- where skills are transferable across client sectors
- intentional hiring and/or inhouse upskilling. It will be easy to identify the specific skillsets offering a return on investment.
We suggest you do this exercise bi-annually. Once at the end of the calendar year, once at the end of the financial year. That way, there’s less opportunity for your business to be hijacked for too long.
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- Continuing a conversation with clients
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About Carol Mackay
After 30+ years running a graphic design firm, Carol pivoted from client-focused projects to consult to the design industry.
Carol’s special power has always been an ability to use design to translate difficult to understand or complex messages. She believes design brings clarity to complex issues. From clarity comes understanding, and understanding leads to knowledge.
As a designer she used those skills with clients like The Magistrates, County and Supreme Courts; Ombudsman schemes and Emergency Service agencies. At DBC she uses the same skills as a business coach … she helps designers de-mystify the complexities of managing a small business.
Outside of DBC Carol mentors graduates and is a Board member at Never Not Creative, a community of creatives pushing for change in the creative industry.