We are in the midst of a talent shortage, an inflationary period, changing and increasingly complex regulations and standards, and experiencing a high volume of work with increased client needs. To compound this, we are seeing declining accounting undergraduate and Master’s degrees, lower college admission rates overall, and young people questioning whether public accounting is a profession they want to stay in as evidenced by record high turnover. With all this happening, why are firm leaders so reluctant to prune clients who are no longer a fit, so they can proactively reduce their work volume and create capacity for their team members and ideal clients?
We have been talking, writing, and speaking about culling clients for years, and all the reasons to do so that my partner Jen Wilson outlined in her article, The Time to Cull Clients is Now article, are still valid. Yet, most firms are making little progress. So, let’s examine the 6 most common objections firm leaders give for NOT culling clients and some strategies to overcome them.
- “We’re afraid culling clients will give us a reputation in our community that we don’t care about our clients.”
Culling clients is a smart strategy to “prune the tree” of your firm, so that it can continue to grow from the top. When you remove clients who no longer fit the firm’s ideal target client definition, you allow your team to go deeper with those clients who do fit the target or ideal. Firms that cull clients care about their talent, because they’re taking difficult steps to alleviate being overcommitted, causing their people to overwork. None of these firm values (talent first, finding ways to relieve talent) could lead to a poor reputation in the community. Instead, this strategy could help you differentiate from other firms that aren’t being as strategic or caring. Of course, to get these reasons for culling across to your team and your community, you must craft a well thought-out, consistent, and top-down communication and all firm leaders must outwardly support your positioning. This includes developing a clear firm strategy and ideal target definition by service line and industry group, making it crystal clear which clients, industries, or other segments are no longer a fit.
When your message is clear and consistently managed, you will elevate your brand and what you want your firm to be known for. Having a clear strategy and vision for your ideal target clients will help in the sales process, too. It will help your business developers focus their efforts and know who to say no to sooner, so they can spend time on the ideal yeses They’ll also be able to better articulate the types of clients your firm is best at serving with referral sources. When a client no longer fits the ideal client definition, they will understand better, too. When you have a good, deep relationship with them, and help rehome them to a firm that will be a better fit, they will likely continue to refer more of the “right” business to you.
- “They haven’t paid our invoice yet.”
To be sustainable, firms cannot continue the practice of billing and collecting after work completion, or worse yet, continuing to provide services to the client who is past due, sometimes severely past due. When a partner does this, they are essentially “borrowing cash” without permission from the firm. And, as my partner Jen says, a client who isn’t paying isn’t even a client – they’re a prospect you’re doing free working for. As a profession, we should get better at scoping and pricing services upfront, collecting a deposit for services to begin work and collecting full payment at the time of service delivery, or better yet, pricing, billing, and collecting ahead of services. Next Gen clients are accustomed to price and bill ahead for almost all of their services, why not accounting and tax, too?
There won’t be an ideal time to transition a client out of your practice. You can always find an excuse – the holidays, too close to spring busy season, they’ve been extended, or they haven’t paid yet. The ideal time to cull clients is right after the fall busy season, in October. The message might go something like: “Mr. or Ms. Client, we have completed our agreement with you for this cycle of service. As we have evaluated our firm strategy and growth plans, we realize that we can no longer provide these [KIND OF SERVICE] services to you. As a result, this will be our final engagement with you. I’m attaching your invoice for the completed services, which we’ll expect to be paid by DATE. Upon receipt of payment, we’ll be happy to work with you to transition our files and workpapers to a new service provider for you. We very much want to facilitate a smooth transition and support you as you move to the new provider. And we are truly grateful for having had the opportunity to serve you.” Yes, some clients may not pay with this approach, proving even more that they were a client worth firing, but most will pay. You will enhance your team member morale when you fire these clients, because your team does not want to keep serving non-ideal, slow- or no-pay clients.
- “We’ll increase their fees, and then they’ll quit on their own, or they’ll become worth it to keep as a client.”
Please do not increase fees as a strategy to cull clients or justify continuing with bad clients because you are getting paid more! Even if they pay you more, they likely will still fall outside your ideal target client definition when you assess and rank your clients.
To assess your clients, define your ideal target client criteria first, including size of client, size of engagement, industry/client type, geographic span, and psychographic attributes. Then define the criteria that makes an “A” client, such as profitability, payment status and habits, reference-ability, referral likelihood, and fun. Be careful about over-using realization as your criteria because the time can be hidden or inflated. Once you’ve defined these elements, run your client list by revenue and service line (and industry if you can), and rank them on these categories. Then, you can identify those that aren’t a fit, either by “group” or segment because you’re going to stop serving that segment, or individually because they are graded a “C” or “D” client that your team members would rather not serve. You can send these clients a Client Termination Letter that explains the direction your firm is taking in the future and commits to help them transition to another provider.
Be straight and don’t kick the can down the road where your team has to continue to work on these clients, wondering why you’re keeping them when they don’t fit your ideal target client vision – or worse, they don’t pay, are mean to staff, don’t respond or don’t respect your timelines. Ultimately, you’ll have to address firing them at a later date, so during this time of incredible work overload and partner and staff distress, just do it now.
- “We owe these clients to continue serving them because they’ve been so loyal for 30/40/50 years.”
A partner, or other senior leader’s retirement is the best time to cull clients that are no longer a fit. Firm leaders often make the mistake of “honoring” the retiring partner and these long-standing clients by filling up your high-potential new partners or Next Gen team members with clients that are not ideal, whether not fitting your ideal target definition, priced improperly, not digitally enabled, or not a cultural match for your team members. This “hold onto them at all costs” strategy prevents your new partners or those on the partner path from building a client base they love, one that bring them joy – and is usually more profitable than the one they are set to inherit.
Instead, use the retirement transition period as a time to communicate with these retiring partner clients that aren’t a fit that you’ll be transitioning them to another provider. Telling a client that they’ll be moving to another firm is incremental to the bad news they are already receiving about their partner or manager’s retirement. This can be communicated in a way that honors and respects both the partner and client. You can also do this in advance, so the client has plenty of time to find a new provider and isn’t “surprised” when the partner retires
- “Culling my clients negatively impacts my buyout.” Or “My compensation will be negatively impacted if I fire clients.”
Retiring partners should give a minimum two-year notice in writing, including a transition plan for clients and other responsibilities in the firm. At this time, the partner group or Executive Committee should agree on what clients will be transitioned in the firm and which should be culled and how that affects any buyout, so they are not disincentivized to transition clients.
And for all partners, set a “billings under management” (BUM) goal to grow their net client billings LESS any agreed upon clients that they will cull that year. Name the clients that will be culled and reduce their BUM target by that amount, so that they are not negatively impacted when you calculate compensation for that portion of their goals. Then they will be incentivized to grow the “right” clients and let go of those that are not a fit.
- “Our revenue – and ultimately partner comp - will be negatively impacted.”
Firms that have culled clients will tell you that they did not experience this. The opposite actually happened – revenue and profits increased because they had more time to serve existing clients, do more for the firm’s A clients, and sell engagements to the right clients for the right fees, bringing greater job satisfaction to the team.
Culling clients that are no longer a fit will provide you and your team a much-needed breather, given the volume and hours your partners and team members are working, It will also free them up to go deeper with the clients you love to work with, and mostly these conversations and opportunities are avoided because you and your team just don’t have the time for extra talking, or for the inevitable new action items that will result from those important client conversations. Creating breathing room will also give you the confidence to say “yes” to those great prospects and to make a bigger difference with those ideal clients that you could provide additional services to. In today’s market, there is an abundance of services your clients need, so you can be choosy about the services you provide and to whom and still grow and increase margins. Be sure to evaluate workload across your partners and team members as you cull clients and take this opportunity to spread the work out where you can to create balance across the team.
To make space for you and your people to breathe and be proactive with your great clients and ideal prospects, you must fire your crummy clients and address the objections you’ll get along the way. Because we believe all firms should cull clients this Fall – as a healthy, pruning practice – ConvergenceCoaching is declaring the Friday after the October tax extension deadline “National Fire Some Clients Day.” Plan now to transition some portion of your clients this fall. Your team needs relief and your practice will be healthier and flourish when you do.
What other objections are you hearing for not culling clients? How have you overcome them and successfully executed on a culling strategy? We’d love to hear from you!
P.S. For more information and strategies on culling clients to create capacity, check out our webinar recording Capacity Issues? Right-Size Your Client Base.
Originally published on September 2, 2022, in the Inspired Ideas Blog and updated as of this blog post.