How To Identify Good Clients (and Avoid Bad Ones)

Peter Drucker is one of the most influential business writers of the last century. His ideas have shaped the ways we conduct business today. One of Drucker’s main ideas was the notion that without a customer, there is no business. Furthermore, customer satisfaction is the key to the success of any business, or in his words: “The single most important thing to remember about any enterprise is that there are no results inside its walls. The result of a business is a satisfied customer.”

To that, I say amen. Here’s the tricky part, though: satisfying all of your customers is simply not feasible unless you choose the right ones and let go of the rest. How do you do that? First, you have to set principles for identifying good customers. Then, evaluate potential customers against those principles, and bid farewell to those who don’t measure up… yes, even if you currently work with them.

Crafting Your Principles

The quest for good customers starts early on. It starts with deciding who your ideal customer is. Different companies have different ideals and cultures, and a variety of parameters are important for making this decision.

Here are the parameters to consider:

• Size
  What sizes are the companies you have enjoyed working with? Do you prefer to work with small family businesses or large corporations?
• Budget
  What is your minimum project budget? Will you take on a project with a tight budget if the customer is strategic?
• Payment schedule
  Would you agree to receiving the full payment at the end of the project? If not, what’s the minimum up front that you require? This is often a pain point for small businesses and freelancers, and I strongly recommend following a harsh rule here with no exceptions.
• Technical knowledge
  Are you willing to work with a customer who has minimal technical knowledge? How might this affect the outcome of the project?
• Project dynamics
  Are you looking for a customer who will just give you the requirements and then wait for the deliverables, or would you prefer a more engaged client? On projects in which you collaborated with the client daily, were the results better or worse than those of projects with less interaction?
• Length of relationship
  Are you interested in one-time gigs or a long-term working relationship? If you are thinking long term, estimate whether a particular customer would have enough projects to sustain that.
• Personality fit
  What kind of people do you like to work with? Check with other companies that have worked with your prospective customer to find out whether there were any personality clashes during their projects.

Qualification Is Crucial

If you get this right, you will gradually see your customer relationships improve. More importantly, you will be less likely to wake up asking yourself why you are working on your current project.

To keep it simple, I’d recommend a total of four to five principles; but as with everything, tailor it to your own business. One effective method I have found is to set your principles in a spreadsheet, rank them, and then decide on a cut-off average for qualification. This is a great tool for identifying deals with higher average scores or for deciding between two potential deals. We’ve prepared an example of such a spreadsheet (Excel Spreadsheet).

A simple and efficient way to determine whether you’ve ranked your principles correctly is to look at past projects and make sure they align with your cut-off average. Specifically, make sure that past projects that really sucked get a low score, so that you avoid taking on similar projects in future.

Don’t be afraid to share your principles with potential customers. Some might show flexibility. A few years ago, when I approached a freelancer for a potential design project, he made it clear to me that he would charge 50% up front and 50% upon completion of the project. I told him we couldn’t accept such payment terms. He immediately wished me luck. You know what? I was so impressed by his confidence that I called him back and hired him anyway.

Self-Qualification

The qualification principles are important because they can also be a great time-saver. I call this self-qualification. The idea is simple. Now that you know what matters most in your relationships with customers, you can signal that on your website, filtering customers who you would never want to work with.

For instance, you can be clear about the prices you charge and the projects you’ll take on. Read this beautifully crafted message from Forty:

“We try to avoid very small projects (under $10k) because our process doesn’t work well at that scale. Likewise, we also pass on very large projects (over $300k) because they’re just not much fun to work on.”

You can be sure that Forty is saving a lot of time by not dealing with customers who want a plain WordPress skin for $500. The company also subtly hints that the big guys needn’t call it either. It has decided that it doesn’t enjoy big lengthy projects, which are usually initiated by big messy corporations. To make sure prospective customers get the picture, Forty specifies its hourly cost straightforwardly: “Our base rate is $145/hour.”

Another beautiful thing to notice is that personality comes through the text on the website. You can be sure that anyone who takes themselves too seriously won’t be contacting the company. And that’s perfect! It helps the agency focus on the right set of customers.

We see the same approach with Blue Flavor: clear, detailed pricing accompanied by a clear message, setting the stage for the initial communication:

Nclud takes a different approach by including a drop-down form in which the customer can indicate their budget. This again makes clear the range of projects the company is willing to take on:

Ngen uses the same “trick.” The difference in the messages that these two menus send is interesting. Judging from the budget ranges, Nclud probably handles bigger projects:

Never Too Late To Say Goodbye

Assuming you’re passionate about your profession, let’s make one thing clear: you should enjoy the work that you do. If you don’t enjoy your work, that means you’ve taken on a frustrating project or, worse, a frustrating customer.

That can happen. In fact, it happens a lot. And even if you employ the principles mentioned above, it will still happen. But that doesn’t mean you have to continue suffering. No matter how many hours you have invested, if a project doesn’t work, it will continue not to work, and you will only experience more grief. Kill it as early as possible. That would be best for both you and the customer.

So, why would you fire a customer? Let’s look at five reasons:

1. The customer is abusive.
   This is an easy one. You should be treated with respect and dignity, and you should not tolerate any kind of abusive language or behavior. Period.
2. You don’t get paid on time.
   You are not a bank. Be willing to bend over backwards for your clients, but they must pay you on time. A customer who doesn’t understand this will hurt your cash flow and, eventually, your business.
3. You get phone calls at nights or on weekends, even though you insisted otherwise.
   People have to respect your time and not act as though they own it. You are selling your professional services, not yourself.
4. The scope of the project perpetually increases, but the customer refuses to increase the budget.
   This happens a lot. You start a logo, and then the client asks you to throw in a website. The responsibility for setting expectations is yours, but if you do that, and the customer still pushes for more without being willing to increase the budget, then you’ll end up with an unprofitable business.
5. The customer doesn’t respect you professionally and ignores your recommendations.
   To stop caring and just take orders from the customer takes all the fun out of a project. It kills your productivity, erodes your portfolio and stunts your skills.

Obviously, an important question is whether you can afford to fire your client. This is a valid concern, and it depends on the circumstances. This goes back to what you value in customers, and so this will vary from company to company.

If you have many projects waiting on deck, you could probably fire a customer without hurting your revenue. In fact, by working with someone who don’t fit your business values, you are probably giving up on great customers who could take your company to the next level. Take all of these factors into consideration when deciding.

If you do decide to fire a customer, you should seriously consider how to go about it without hurting your relationship with them and without risking your reputation.

Some ways are better than others. The fact that you didn’t get along with this person doesn’t make them bad. It simply means that your values or personalities do not match. More often than not, you will be the one who has to pick up the phone. Follow these steps:

1. Prepare for the call. Look hard again at your decision to make sure it is the right one.
2. In the call, explain the reasons for your decision, and point out that it was a business decision, not a personal one.
3. Help the customer find someone else who would be willing to work with them. Other firms or professionals would likely be happy to get the opportunity.
4. Bill what you deserve.
5. Note what you learned from the relationship, and add it to your qualification process.
6. Most importantly, move on.

At the end of the day, the Pareto effect applies to some degree: 20% of your customers are profitable, fun to work with and contribute to 80% of your growth. The ideas explored above could help you increase that 20% to 30, 50 or even 90%.

In Conclusion

Working with the wrong customers has ramifications. Designer David Thorne relates oneemail exchange of his that serves as a funny yet unfortunate reminder of this. It didn’t matter to David that he had already spent hours working for that customer; he understood that the relationship was not for him, so he ended it.

If you are disciplined and follow this simple process, you will see an increase in successful projects. And your life will be better, too.