Firing clients without upsetting them
You’re fired! It’s the words nobody ever wants to hear, especially when they come from the mouth of your trusted adviser.
But sometimes, we need to be cruel to be kind and disengage with longstanding clients, for a variety of reasons.
In this video, the right way to fire clients without upsetting them, to allow your business to grow and your profitability to prosper.
Have you come across the 80/20 rule before? It’s also known as the Pareto principle, the law of the vital few, or the principle of factor sparsity. Put simply, it states that for many events, roughly 80% of the effects come from 20% of the causes.
In business, it’s often held apparent that 80% of sales or profits come from 20% of the clients. And of course, this means the opposite is also true; with 20% of income coming from 80% of clients.
If you haven’t already taken the time to confirm this holds true within your own business, take a few moments to check it out. You might not discover the proportion coming out at precisely 80/20, but I would hazard a guess that you’ll find the majority of your revenue comes from the minority of your clients.
With this knowledge in hand, and with a finite time to work with clients, the natural conclusion is likely to be a time when you need to say, “you’re fired” to some of your clients, those at the lower end of the 80% who are producing the 20% of your income. But that’s a tough thing to do.
After all, these are likely the clients who have been with you for a long time. They are the ones who said yes when others said no, allowing you to make a start in business. They might be clients who, despite their lack of explicit profitability, refer you to others in their network.
And what if they win the lottery right after you fire them?!
I’ve heard financial planners use this as the justification for not firing unprofitable clients. This lottery fallacy (it applies to the potential of inheriting a substantial sum of money from a rich aunt too) is worth addressing before we move on.
Firstly, if you don’t know the odds associated with a lottery jackpot win, you probably shouldn’t be a financial planner! Secondly, even if the client does win the lottery, experience shows us that they tend to move from their long-established adviser pretty soon afterwards.
Don’t hold onto unprofitable clients because they might one day become profitable!
So, you’ve crunched the numbers, you’ve made a list (and checked it twice), and you’ve identified a bottom tier of clients. These are the individuals or couples who don’t pay you enough each year to justify your time, effort or the liability associated with demonstrating ongoing suitability to a client.
They aren’t profitable today; they can’t become profitable, either because they won’t pay you more, or paying you more wouldn’t represent excellent value for money based on their personal circumstances. You need to fire these clients.
But you need to fire them in a way that doesn’t upset them. You need to fire them in a way that leaves them feeling good about themselves, and good about you. Welcome to something I like to call eloquent disengagement.
We came up with the term eloquent disengagement about a decade ago at my firm of Financial Planners.
Something we like to do there regularly is carry out profitability testing across the client bank. Because we’ve always got a finite about of capacity to work with clients, and one of the requirements of a successful business is to maintain and grow its profitability, on occasion we need to disengage with one group of clients so we can engage with another.
Now I’m sorry if that sounds callous. But I would argue that not firing unprofitable clients so you can engage with more profitable ones is doing a massive disservice to the bulk of the clients you work with, as well as to your team and you. Unless you make the tough choices required to prosper as a business, you’re doing no favours to anyone.
So eloquent disengagement; the art of firing clients without upsetting them, and better still leaving them feeling good about the experience.
Sounds impossible, right? Here’s a simple framework for getting it right.
1 – Be open and honest. There’s no sense in making up a story to justify your decision. A bit like ripping off a band-aid, quick and painless is the goal here. Explain what you’re doing and why you’re doing it. Clients appreciate this candour. They get that you’re in business and businesses, along with the clients they serve, change.
2 – Explain what’s going to happen next. Always keep in mind that the world of retail financial services can be a confusing place for the consumer. We understand the process of agency termination, but there’s a good chance your newly fired client won’t. So spell it out for them. Here’s what going to happen as a result of this action. You can contact the product providers directly to get updates and information.
3 – Help them find a new home. This probably won’t be all that easy, as if they’ve been unprofitable for you, there’s a good chance they would be equally as hopeless for a competitor. But point them in the direction of an adviser directory, or share some tips for finding a great financial planner. Don’t sack them and leave them out in the wilderness.
4 – Say thank you for the contribution they have made to your business, and reaffirm that you remain responsible for the suitability of any original recommendations, but not, of course, the ongoing suitability of their plans.
5 – Invite them back, should their circumstances change. Look, it’s pretty unlikely they will approach you again (although never say never), but don’t slam the door in their face, leave them the option of getting back in touch should things change. This message has two benefits. It deals with the lottery fallacy I mentioned earlier, not that the lottery fallacy needs a solution. And it means they can refer friends, family or colleagues who might be better suited to your services.
That’s five simple parts of an eloquent client disengagement.
Whether you do this in writing, over the phone or face-to-face will depend on the strength of your relationship with the individual involved, and how much you feel you owe them.
Always confirm it in writing though. Get the letter okayed by your professional indemnity insurers and compliance consultants first, in case you are encouraging a complaint and invalidating your cover. Firing clients well should never result in a complaint situation, but in this increasingly litigious world, it’s essential to cover your backside.