Practice Perspectives | Spring 2020
Are You Ready to Fire Your Worst Clients?
Sometimes the best growth tactic is pruning the clients that are holding you back.
President, Kuesel Consulting
As a growth consultant, it’s not often that you will hear me talk about walking away from
business, but if you are serving too many C-, D-, and even F-grade clients at the expense
of your A- and B-grade clients, that’s when the warning bell rings. If your time is consumed
with smaller, fee-sensitive, low realization work, that means that your larger, non-fee-sensitive,
high realization clients aren’t getting the attention they deserve. While it may still
seem counterintuitive to shed clients when you’re trying to grow your business, there are
times when firing clients actually facilitates faster and greater growth.
When I speak to partners about best practices in firing clients, I commonly hear comments
like, “We aren’t afraid of firing clients,” or, “We fire bad clients all the time.” However, a light
probe of these statements generally reveals that these were extreme cases where clients
acted unethically or treated staff poorly. Though that’s certainly a good reason to fire a
client, it’s not the concept we are exploring today. Having a comprehensive client evaluation
program is about much more than getting rid of a few bad apples.
Why is this so important today? First, it’s incredibly difficult to find and keep great staff in
today’s job market. When you build a strong team, you want them working on top-tier
clients, period. Next, your firm is not the same as it was five years ago. Your larger clients
have gotten bigger, while others have largely stayed the same. At some point, you will have
upskilled your talent and firm to service those larger accounts, leaving the smaller accounts
that haven’t kept up their growth to drag down your profitability and growth. Third,
compression of the tax season is a common reason why some firms finally shed smaller
and one-off clients. Serving a high volume of low-value clients is simply not the way a
modern CPA firm can survive. Finally, profitability at our firms has been in a vise the last
several years; technology, personnel, and overhead expenses are growing faster than
revenue in many cases. You simply cannot afford to serve highly price-sensitive clients that
generate huge write-offs while hoping to grow your bottom line.
So, what does a comprehensive client grading program look like? It’s a simple matrix that
allows you to assess the quality of your client relationships. You will want to consider the
following aspects for each of your client relationships:
Does the client meet the minimum fee threshold set by your firm? If you don’t have
a minimum fee, perhaps you have been increasing your starting fee over the years and
some clients have never caught up.
2. Realization & Payment History:
making a minimum of 80 percent
realization on the client? The average
realization rate for firms hovers around
85-90 percent. Do they pay on time or
are they often beyond (or way beyond)
3. Number of Services Utilized:
Is this a
tax return-only client or audit-only client,
or do they also buy other services like
tax planning, business valuation,
consulting, etc.? Statistics show that
clients who buy only one service have
much lower long-term retention rates
than clients who buy multiple services.
4. Growth Trends:
Is this client growing,
maturing, or declining? The economic
phase of the client can give clues to
their future profitability and retention.
5. Referral Power:
Does this client serve
as a conduit to other connections and
clients? Are they making introductions
and referrals for you? A client that helps
you make connections and makes
referrals for you is extremely valuable.
6. Ease of Working Relationship:
client treat your staff well and avoid
pushing ethical boundaries? Are they
pleasant to work with? If not, your staff
will not like interacting with these clients
and over time you may lose valuable
You will note that the first three criteria for
evaluation are largely objective, while the
last three criteria are more subjective. That
means no matter how scientific you want to
be, you will never fully remove emotion and
subjectivity from your client evaluation
process. But, overall, this type of evaluation
will give you a good idea as to which
clients should be fired.
A good target to consider is 10 percent
forced attrition per year, meaning cull the
bottom 10 percent of your client base
annually. Realistically, though, you can
expect a strong argument from your
partners against firing low-grade clients,
as some of these clients are bound to
be friends, relatives, and long-term
relationships that escape the rationale of
this kind of an exercise.
When you consider all the reasons why
firing clients makes sense, you may be
nodding yes more than you are nodding
no. Just remember that every dollar of
revenue is not created equally, and the
dollars earned from serving low-grade
clients at the expense of your high-grade
clients may well not be worth it.