Is your client a profit vampire?
Do you remember watching those old horror films with the gothic vampire who’d suck the blood from their victims in their sleep often without the victim’s knowledge? The victims always seemed so naïve and innocent. How scary those films were. Sometimes I even found it hard to go to sleep or worse still, I’d have nightmares. Well, there may be scary terrible deeds taking place every day within your business that need to be resolved. What horrors are lurking below the surface?
I first wrote about profit vampire clients over 10 years ago and they still are draining the profits of many agencies.
Every agency I have worked with seems to have at least one Profit Vampire client and many have had several (and I’ve worked with over 150 agencies).
What is a profit vampire client?
A client that we make either no profit or very little profit compared to the majority of our other clients. As well as draining our profits they are often costly to service. In some cases, we can end up paying for the ‘privilege’ of having them as a client. So why do we tolerate them?
Firstly, can you measure the profitability of each customer or client within your business?
The trap that is easy to fall into, is to focus on their spend with us, their turnover and be deceived by that. This can trick us into assuming they are profitable. Even if you can’t measure it absolutely you probably will know intuitively which clients are Vampires.
So how does it happen that a client is unprofitable for us?
Perhaps historically we set our prices too low. This may have been because we lacked confidence at the time to charge a premium price or the right price (whatever that means!) Aggressive pricing from competitors can cause us to drop our prices. Our desperation to win a new client in the mistaken belief that our price is the sole determinant in the decision process for our clients. Another mistake I commonly see is being seduced by a ‘big name’ client, which will look good on our client list adding credibility to our offering. How much are you actually prepared to pay for a ‘trophy client’? Let me re-phrase that; how much are you actually prepared to lose to have that ‘trophy client’?
Another common problem I see is that the work changes from the original requirements and we don’t adjust our price to take this into account perhaps through fear of rocking the boat or seeing it as too small to bother about.
Occasionally I am told “that’s the way it is” or “there’s nothing we can do about it”. To me that is the defeatist attitude of a ‘victim’. I see some of my agency clients decide to take responsibility and resolve to improve the situation. They have chosen to no longer be a victim but to be a survivor.
One strategy I occasionally see, is believing that the situation will miraculously improve tomorrow. It will not improve unless you take action. Einstein said that the first sign of madness is doing the same thing and expecting a different result. Hoping it will improve is not a realistic approach. Hope is not a strategy.
So how should we slay our vampires?
Here’s 6 key steps.
- Firstly, define and identify your profit vampire clients and the reasons why. Then develop an individual plan to improve the situation with each client. If you can’t improve the situation then look to replace that customer with a more lucrative one. Is that easy, no, but it beats doing nothing. I regularly work with agencies to plan their strategy and conversations with their clients to improve and increase fees, rates and prices.
- Take a long hard look at the rest of your client base to understand what strategies are required to maintain, improve and amend each client position. Those clients you call ‘investment clients’ can sometimes be the ones we lose money on and will never provide a decent return on our ‘investment’. It is so easy to delude ourselves.
- Take more time to think through your pricing strategy. How can you optimise your profitability by pricing better? Price is one of the most critical areas to affect profitability. When I work through with my agency clients how best they can price more strategically we often identify ten or more different techniques they need to consider.
- Recognise that your price today is not just a price for today. It will have long term implications especially with that specific client. If you get your price wrong today it will have a major influence on the price you can charge that same client next year and the year after.
- Ensure the team appreciate the importance of profitability and the implications of what impacts it, so that they are not just focused on the topline revenue. Is your team incentivised on gross revenue or profitability?
- Be brave! Making the right decisions in business can be all about being brave and having the confidence to make courageous decisions.