How to Identify (and Avoid) Deadbeat Clients
Published: August 18, 2008
Author: David Rodnitzky
I’ve only been an SEM consultant for eight months now, but in that time I’ve definitely learn quite a bit about finding, pitching, closing, and serving clients. The learning curve has been steep, but I think I’m now in a position where I can quickly discern the difference between a “good” client and a “bad” client.
The very notion that you should screen your clients may be somewhat controversial for some folks out there. After all, if you are trying to grow your business (in a down economy, no less) you might argue that any new client is a good client, period. But as I noted in a prior column a few months back, signing up the wrong client can be disastrous for both you and the client. So here are a few tips to help you grow a base of awesome clients.
1. Avoid Price Shoppers. Savvy clients will compare offerings from multiple consultants, which is always a smart thing to do. Some clients, however, don’t compare the actual quality of the service offering, and choose to only focus on the price of each consultant. In the final stages of their decision process, they’ll say something to you like “I really like you the best, but consultant X is willing to work for me for 50% less.”
Assuming you have priced your consultant at a rate that you feel accurately represents the level of service you can provide the client, you should never reduce your price to compete with a lower offer from another consultant. There are two primary reasons for this rule. First, you are doing a disservice to yourself and to your other clients. If you charge all your other clients $100 an hour but decide to offer a discounted rate of $50 to a new client shopping around based on price, you are effectively cheating your current clients. On top of that, you’ve created a disincentive to spend a lot of hours on the new client, since you know that the hours will be billed at a lower rate (all things being equal, you will probably work for $100 an hour than $50 an hour). The net result is poor service for the new client and inequality across all clients.
The second reason not to compete on price is that it immediately tells you something about the mind-set of the prospective client. A client that sees you as a commodity is not truly valuing your services. Inevitably, this will lead to further price discussions down the road, as the client is pitched by new consultants who will do whatever it takes to win their business. You want to find clients that understand that every consultant offers different levels of value and that it is worth choosing a consultant based on “price performance” and not price alone.
2. Avoid Fishing Expeditions. I’m always willing to spend an hour on the phone with a prospective client, both to learn about their needs and to explain my value proposition. In this initial hour, I’m happy to give out some basic tips on how they can improve their business. I believe that providing free advice is one of the best ways to show potential clients my breadth of knowledge and the value I can bring to their business.
Sometimes, however, the line between ‘free advice’ and ‘free consulting’ starts to become blurred. When I feel that a client is abusing the pitch process to glean as much information for free – with little to no intention of actually paying for consultant – I know it is time to cut ties with that business immediately.
In the legal world, the term “fishing expedition” refers “to the prosecution‘s attempt to undertake more intrusive searches of a defendant’s premises, person, or possessions when (in the defense’s view) there is insufficient probable cause to carry out such a search.” Here are some examples of fishing expeditions in the consulting world:
- A request to build out a keyword list on an existing account as a way to “demonstrate your expertise;”
- Several phone conversations as part of the pitch process that involve very detailed and action-oriented questions about the current accounts and future strategy;
- Recommendations of technology and/or a review of existing technology.
Long story short: if a potential client wants to spend a lot of time with you prior to signing up for an engagement, it’s best to politely submit your proposal but refuse to continue to offer free advice ad infinitum.
3. Don’t Twist Their Arm. Consulting is not like selling a car – you can’t close the deal and never expect to see the customer again. A successful client relationship is built of trust and mutual benefit. As a result, clients that seem hesitant to sign up for your service and often worth avoiding. If you are confident that you can demonstrate significant ROI for a client, and if you present a clear plan to achieve that ROI, and the client is still wavering, by pushing the client into a relationship you may be causing problems for everyone involved.
I’m not saying that you should never apply a little sales pressure, but the best clients are the ones that “get it” pretty quickly – they understand what you bring to the table and why they need to use your services.
4. Be Skeptical of Profit Sharing. Clients that want to cut you in on the profit – without any additional compensation – are generally not good clients. Though it sounds awesome to have the opportunity to share in your client’s success, in truth one of two things will usually happen. Most likely, the profit just won’t materialize. The client realizes in advance that there is very little profit and little opportunity for profit growth – by giving you a share, he gets basically free consulting and also validates his belief that there isn’t much profit to be had.
The second scenario, which can sometimes be combined with the first one, is that you do an awesome job at driving profit and the client starts to fret about the fact that he is paying you too much. As a result, he cancels the contract, and you get cut out on all the profit potential.
I once had an offer from a major Internet company to run their search team. They offered me a decent base and a bonus structure that promised me upwards of $450,000 of annual compensation if I hit my metrics. Sounds great, right? Remember, this was a very big Internet company. Can you imagine what would have happened if I had gotten 100% of my bonus the first quarter I was there. The CFO would have looked at the compensation and realized that some lowly SEM guy was getting paid more than 90% of the VPs at the company and my bonus structure would have been quickly and severely reduced.
The same is true with profit-sharing arrangements with clients; as soon as you start raking in big bucks, the client is inevitably going to think that the contract was a horrible mistake and do everything he can to reduce or eliminate your windfall. I’m not suggesting that the client maliciously planned this in advance, I’m simply saying that it is human nature to have a hard time paying a consultant tens of thousands of dollars a month!
5. Understand Problems Upfront. I wrote a blog post a few months ago with the title “Search engine marketing is not alchemy (and don’t trust anyon
e who tells you otherwise).” Every client has one or more problems with which they need help. As part of the pitch process, your job is to understand every substantial problem and factor these issues into the cost of your engagement. Probably the worst consulting engagement you can get yourself entangled in is one where you know the solution but it’s impossible to fix the problem. In such a case, you are almost certainly setting yourself up to fail.
Here are a few common scenarios that you need to identify and consider upfront before you do any work for the client:
- The client has no internal engineering resources to make changes, or they are so backed up that it’s unlikely your changes will be made anytime soon;
- There is no way to track any ROI and therefore no way to measure your performance;
- There is no accepted definition of success (no ROI, click, brand perception, or progress goals);
- Corporate culture will prevent any changes you make from being approved (most common and large multinational corporations);
- The In-house SEM team are worried you will one-up them and are determined to sabotage your work;
- It’s unclear who is managing the project internally;
- The back-end economics of this business are so inferior to competition that its virtually impossible to make paid search work profitably;
- Due to past violations, Quality Score is so low that it’s impossible to drive traffic through Google and other search engines;
6. Size Matters. Last but not least, don’t accept clients that are too big or too small for your business. Understand your client sweet spot and stick with it. As much as it is tempting to sign on a $1,000,000 monthly spender, if its just you in your Mom’s kitchen running your business, there is no way you will really be able to manage this client. Similarly, you may think that you can sign up 50 $250 a month clients and have a wonderful passive income from this small accounts, but you’ll soon find that some small clients can require as much work (if not more) than large clients.
I guess another way to state this point is to simply say that you need to define up-front who you will and won’t work with. Perhaps as an overall concluding point, if you’ve learned one thing from this post, it would be this: you need to choose your clients as much as your clients choose you. Just as an offline retailer will design their store to encouraging certain people from coming inside and others from not, you need to define your consulting business to attract great clients and repel those who just aren’t a great fit.
[Editor’s Note: Thanks to the three people who answered the survey question – I wrote this article for you.]
[Editor’s Note, Part Two: I’d like to thank all of my current clients, they all fall into the “good client” category – in the event that any of you ever had a doubt! :)]