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How to categorise your clients

10th Aug 2010
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Some clients are more valuable than others, but how you decide who gets the A-list red carpet treatment and who's in the bargain bin? Mark Lee offers some assistance for practitioners.

Everyone wants to treat all clients the same, but we also know that some clients are more valuable than others; so how do you prioritise when you have to?

I’ve long felt that it makes sense to assume that your most valuable clients are on an A-list and your worst clients are on a D-list. (I’ll get to the B and C-list clients in a moment).

A-list clients are those who are making a major contribution to your practice and you want to ensure this continues.

D-list clients are the ones who are dragging you down, consuming resources and preventing you from enjoying your work as much as you could do.

One accountant told me that after he merged his practice with another sole practitioner, they went away for a weekend to analyse their newly merged client base. He found that 80% of his clients made no contribution towards profitability. All of their profits came from 20% of their clients, the rest just kept them busy. This 80/20 split is very common. The worst D-list clients often comprise 20% of a firm’s client base.

The A-listers
Each accountant has different criteria for determining who their best or most valuable clients are. The most obvious factor might be the level of fees charged each year, but is that the only way you assess the relative value or importance of your clients? It may be.

However, when I ask accountants they suggest a range of other factors including:

  • How much they like working with the client
  • How interesting and varied the work is
  • The extent to which the client effects valuable introductions
  • How reasonable the client is (i.e. whether they seek and take advice, are likely to pay extra fees for special work each year, respond promptly, pay on time, etc.)

There is one factor that is rarely raised and yet it may be the most important of all. How profitable are those ‘best’ clients? Indeed, how many accountants have the systems in place that would enable them to determine the answer to this question?

In 2001 I joined WJB Chiltern and took responsibility for the Tax Support for Professionals team. The team’s clients were largely smaller firms of accountants (this was the inspiration for the Tax Advice Network that I established in 2007).

I wanted to know who were Chiltern’s A-list client firms of accountants; these would be the accountants I would visit first - the accountants where I would hope to generate the best return for time invested in building relationships.

When I asked the Chiltern team they initially identified a number of supposedly key clients - or so they thought. In fact, these were simply clients who were in regular contact, often on the phone and certainly who were front of mind. Although the consultants were happy dealing with those clients, they had no idea if they paid on time or the aggregate fees earned from such clients.

A little research revealed that all of the named clients were amongst the least profitable ones for the consultancy. They regularly made use of a low cost telephone helpline but didn’t use the firm for any high value work. They consumed Chiltern’s resources and cost the firm money that was not matched by the fees earned from those same clients. In effect they were exploiting the firm’s loss leader service proposition. Were they Chiltern’s ‘best’ or most valuable clients? No.

Some firms are able to identify their most important clients by reference to the information in their customer relationship management (CRM) system. Others have a gut feeling. Whatever works for you is fine; but do make sure that you are not fooling yourself. Clients who are front of mind may not be the most profitable or indeed the most valuable.

The B-list
In my view, these are the clients who are not on your A-list but who you have determined have the potential to get there. They might own smaller growing businesses or have the potential to make valuable introductions (but you have yet to ask them to do this). Perhaps they will be seeking additional help and advice as their business grows. Maybe they are relatively newly acquired clients so it’s too early to tell.

You will want to explore and to cultivate relationships with them to see if you can help them move them up to the A-list. I suggest you only do this after ensuring you have cemented your relationships with the proven A-listers.

The C-list

These are the clients who are no trouble but are unlikely to ever pay higher value fees, make valuable introductions or otherwise make it onto your A-list.

There is a danger of assuming that many of your less engaged clients are C-listers. That assumption may deny you the opportunity of finding out their true potential. A client feedback survey may help you to clarify the true position.

The D-listers
I regularly encourage accountants to ditch their bad clients. There are two primary reasons for this:

  1. Following the Pareto (80/20) principle to which I have already referred, you can be sure that your worst clients (however small the number) cause the bulk of the problems and hassle that you suffer. Conversely, 80% of your profits are typically generated by A-list clients who probably constitute just 20% of your client list.
  2. Your worst clients are more likely than your better clients to refuse to pay for work done, to find reasons to report you to your professional body for unprofessional conduct, fee disputes or even to claim you have provided negligent advice.

Everyone will have their own way to determine what are (to them) D-list clients. My list includes clients who display two or more of the following troubling tendencies:

  • Resisting any increase in your fee to reflect additional work they have requested (assuming that you would notify them of the increase before starting the extra work).
  • Appearing not to value your time or advice.
  • Insisting on ‘gut feel’ advice rather than fully researched advice.
  • Using buzz words and terms that they evidently don’t really understand.
  • Regularly needing to be chased up to provide information or other responses to your enquiries.
  • Delaying production of key documents until the last minute.
  • Failing to keep their promises as regards the standard of their records.
  • Not paying your fees in accordance with your payment terms.
  • Are rude or otherwise unpleasant to you or your staff.

Clearly there is no point allocating clients across these four categories unless you plan to do something as a result. What might that be?

Mark Lee is chairman of the Tax Advice Network and consultant practice editor for AccountingWEB.co.uk.

 

Replies (19)

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By AnnaKournikovasKnickers
10th Aug 2010 10:47

Catagorizing your clients

As an IFA, I try to avoid taking on 'M' list clients. That is the mentally disordered.

(I believe the accountancy profession calls them BMW clients!).

So, to avoid those aged debtors lists, friday night telephone calls about VAT after you’ve sunk a couple of gins, etc etc I have my own ways of spotting them; you may like to share yours.

They pay £25.00 per month for a ‘Premier’ current account with benefits that they got for free last month. They also buy crucial products like pensions and general insurance from their bank branch.

 They wear ties with short-sleeved summer shirts They wear socks with sandals and deck shoes They pay all their bills by direct debit (AKA substantial interest free loans to utility companies!They take their allegedly loved ones on holiday to CenterParks.

 

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By David Winch
10th Aug 2010 10:50

Graded Grains

Great article Mark.

I've heard it said that the As are the ones you love, who love you and who are hugely profitable.

The Bs are the ones who give you no problems and are very profitable.

The Ds are, as you say, the bottom 20% who give you 80% of the grief, so politely terminate the engagement.

So what about the Cs?  The Cs are those where you need to decide if they are Bs or Ds!

In other words, create a large gulf between staying and going to make your decision making easier, increase your confidence when it comes to ditching the Ds, and make it easy to be able to staunchly defend your decision to keep each B.

David

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By James Hellyer
10th Aug 2010 11:26

Good article

That's another useful article, Mark.

At various practices I've worked at I've noticed that there's a perception gap between who the principals think good clients are and who anyone else migh think is a good client. Often considerations like the size of the fee trump everything else.

This seems to miss the point: yes, one client may generate fees of £15,000 a year, say, but if they take more than a year to pay, generate substantial write offs, have bad records, don't appreciate your advice (if it isn't what they want to hear), and are rude and abusive, then do you actually want them as a client?

I'd say, "no".

Just think how much time you'd have to look after the clients who deserve a good service if you didn't waste so much time dealing with Double D clients (guys like the one above, who are big tits[***]).

The irony is that in many practices the worst clients get the best service, because they are most likely to complain and  cause trouble if their last minute job incurs a filing penalty, and so on.

 

 

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Teignmouth
By Paul Scholes
10th Aug 2010 11:43

A 3rd dimension

Excellent article Mark.  I'd like to add an extra dimension to the assessment "us".

Whilst assessing the relative merits of each client it is worth assessing your own competence and needs.  In other words, a client may move from A to B through no fault of their own.  This has happened here over the past couple of years as I've realised that activities X & Y were no longer what I wanted to be doing and so, rather than the client causing me grief (or boredom) it's the fact it's time for me to change & move on.

In one case, it's saved the relationship because I have arranged someone else to step in, leaving me with reduced fees but now doing the bits that suit me.

One final thought.  Allocating every client over 4 categories can take an age. So do it in two stages, identify the Ds, first, say goodbye or "FIFO" (Fit In or....) and that leaves you more time to judge the others.

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By James Hellyer
10th Aug 2010 11:57

BMW clients

Bitchers, Moaners and Whingers

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By AnnaKournikovasKnickers
10th Aug 2010 17:42

BMW

You gotit!

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By zarathustra
10th Aug 2010 17:43

What about contributions to overhead

Surely its a case that most accountancy firms overheads are pretty fixed, short of sacking half the workforce. Is it not a case that even poor clients are making a contribution to running costs?

Not dissagreeing with you completely, just putting a slightly different point of view.

 

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By Bob Harper
10th Aug 2010 17:51

Commitment

@Mark – great article.

Before thinking about grading clients I’d suggest practice owners evaluate their personal goals.  If all is well the there is no need to really do anything.  However, if all is not well then the grading process can be the foundation of a strategic marketing plan.

I recommend practice owners commit to a specific outcome.  Part of the definition can be a minimum recovery rate. Any client returning below this or is not enjoyable to work should be graded D for dump. The idea is to have a firm with only A, B and C clients.  

Personally, I’d suggest the A grade is reserved for where the practice owner gets their personal kick.  That could be the work-type, clients who listen or emotional involvement, but they must deliver at least the minimum in recovery rate.

B clients are more profitable or make referrals. C clients meet the minimum or just above.  Both B and C grade clients will probably have little emotional commitment but are good to work with in the sense they are not hassle and pay on time.

If a firm did this they would then have the basis of a marketing plan to eliminate D clients.  Then a tactical plan and budget could be developed based on how much change was needed. As new business came in D clients could be disengaged. This would improve profitability and enjoyment for the owner and all the employees.

What I would recommend is having a disengagement process where you give clients the opportunity to be an A, B or C client. 

It’s not all about money but money can be the baseline.

Bob Harper

Marketing for Accountants

   

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Mark Lee 2017
By Mark Lee
26th Dec 2011 15:57

Great additional ideas there.

@AnnaK (your real name?)  - Love the idea of M list clients.

@David - Lovely variation on the nature of each categiry. Thanks for that.

@James - Great points. Espec like your variation on the M list clients.

@Paul - I agree. Indeed I suggest starting by identifying the A and D list clients. Only after you've sorted them out should you make time to create the C and B lists. Often you'll not get to it! I always make that point in my talks but it seems I didn't put it in the article.

@zarathustra - C clients are those that simply make a contribution to overheads.

@Bob - Good points. You're right that no one can determine their A list clients until they know what it is they want from their client base. As I said: "Each accountant has different criteria for determining who their best or most valuable clients are." Again, I like your variation on the nature of A-C clients. Nice one.

Mark

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By Vaughan Blake
10th Aug 2010 19:17

The Traffic Light System

Having (mis)spent years categorising/appraising things from restaurants, pubs, concerts, bands, wines, cars, clients etc etc I now use the traffic light system for everything.          

For clients this would be:

Green - A keeper.  This basically covers the A - C+ clients.  Over the years I have had countless occassions where a C lister has unexpectedly come up trumps with a recomendation, received a windfall, married a millionaire.  The C listers may not be the source of high fees or special work but they are the bread and butter and provide a useful network to tap into.

Amber - I won't actively seek to lose them but if they went I wouldn't be too bothered.  These would be the ones with two or three of the traits that would get them onto Mark's D list.  Yes they may use buzz words, leave things to the last minute and need chasing up - but if they pay their bills reasonably promptly then fine.

Red - These are to be actively encouraged to go elsewhere.  These would have two or more traits from the three deadly sins, poor payers, consistant under-recoveries, being rude or unpleasant to me or my staff more than once without an apology (we all have bad days!).

The categories then translate into what action to take.

 

 

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By maacprime
10th Aug 2010 19:30

C and D list clients

I'd be hesitant to recommend actively weeding out C and D clients unless they habitually fail to pay for work done, even on a monthly scheme. The more people who know your firm, the more likely you are to get referrals even if it does mean profitability isn't as high as it could be. The usefulness of a network is a square of the number of participants.

Besides that, D clients often persist in being D clients because no one wants to take on the thankless (and likely to be written off) work to turn them into C clients.

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By Mike Smith1
10th Aug 2010 20:47

There is another way.......

I train, educate and encourage the 'D' listers to become 'C' listers, the 'C' listers to become 'B' listers and so on. It's part of their self improvement program which I offer as part of our service. I'm not a shrink , I'm in practice like the rest of you. You can't teach an old dog new tricks, but you can certainly teach a new dog, your own tricks. Results - I've only had to ditch one client in the last 5 years or so, profits increase year on year and my last client satisfaction survey was an A+.

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By aiwalters
11th Aug 2010 10:22

fantastic article Mark, as usual
It's interesting. I have one client who drives me crazy, speaks completely in a monotone, can't stand him. He was actually my first client, so I completely undercharged and make a loss year on year on him. His work is boring, he calls me to make an appointment to discuss something stupid, takes 2 hours of my time for something that could be resolved in a 170 character text message, and is a Z client.
So why not fire him? Because he consistently refers (unprompted by me) dozens of (decent, high fee paying) clients, year on year. I only found this out after asking a few clients who recommended them.

Let's put it this way - I think I'll put up with him another few years. (Although, should I put him on my A list - I call him a A/Z client). To be fair, he's never rude, always pays on time, and respectful. I think I'm too tough on him.

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By ShirleyM
11th Aug 2010 10:36

Talk to your clients

We 'sack' our D clients. They are not worth the stress they cause, even if they are the best payers and most profitable client you have.

If the client can be contacted, we talk to them first and explain the problems and what we have done to try and resolve them. If they argue we get rid pronto. If they apologise and promise to change we may give them another chance. Virtually all of the clients who apologised and stayed on did change and turned into A-list clients who are now a real pleasure to deal with.

 

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By Vaughan Blake
11th Aug 2010 12:18

Good paying profitable clients on a D list?

Shirley, what do your good paying profitable clients do to get on a D list?  Do they keep showing up with rubbish records but are quite happy to pay for them to be put right.  That would be fine by me.

If they bring in rubbish records just before a deadline I agree that is stressful, but that is more of a client management issue.  I have a clear understanding that we need records by X date to guarantee meeting a deadline.  If they miss X then I adopt plumber mode and take a sharp intake of breath and say that "we will see what we can do but can't make promises".  It is then up to me if I want to work until midnight or not and will feel ina position to ask for a higher fee.

Most clients are sensible and will try to work with you if you explain the position.  If they are pleasant, profitable and good paying stick with them as everything else is fixable.

I have always found that the lastminute.com clients with rubbish records also tend to be the bad payers and simply don't understand why their fees are high causing a recovery issue as well. These alround bad guys tend to never change and don't respond to education.  These are my red clients.  They are very few and far between and often disappear anyway as they tend to run their own businesses with equal abandon.

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By geoffwolf
11th Aug 2010 12:56

sometimes

you have to keep a D client because their brother  or spouse is a better client than they are. Ditch the D and you risk losing a B or A client as well.

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By CoffeeCup
11th Aug 2010 13:01

Why Remove your Ds put them on your special rates scheme!

We all have or have dealt with D case clients, but in my case I have a great way of dealing with them and that is by spotting them early and putting them on the special offers rates!

We have all heard of the Bog off offers in supermarkets, but my D clients get the FO or MUG rate.  This is very simple and is the tri or quad rate, yes I really mean that 3 -4 times your usual charge.  Some of them pay some of them get the hump and leave, but the ones who pay end up compensating you for the lost time/wasted time extra hassle and cash flow difficulties of dealing with them.

 

 

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By ShirleyM
11th Aug 2010 14:22

Vaughan

We all have different opinions.  To me, a D list client is someone who fulfils one, or more, of the following:

Ignores our schedules (we give them a date to bring their records in by) and don't bother to warn us they will be late -  this screws up our schedules and costs us money

Someone who lies (Granny died for the 3rd time) - means we have a lack of trust in them

Someone who thinks we are their personal admin staff and constantly makes calls asking for information that we have provided numerous times previously but is unwilling to pay for this extra support - this costs us money

Someone who blames us for their shortcomings - damned annoying

Someone who asks us to help/advise/explain things, then doesn't listen and ignores us anyway - damned annoying

Someone who doesnt keep their half of the agreement, and then complains bitterly when we ask for higher fees - costs us money and is damned annoying

Some one who is 'too busy' to talk when we need information, but complains when we are unable to give immediate answers and services. - damned annoying

In a nutshell, we like clients to work 'with' us, have mutual respect going both ways, and for them not to have unreasonable expectations eg. we provide tax advice but they won't get the equivalent of a tax specialist who charges £600 per hour! We bend over backwards to help clients, but we expect cooperation in return.

We don't have a single bad debt (she says while smiling broadly) due to our monthly direct debits, insistence on advance payments, and nothing handed over until payment is made in full.

Edit: just re-read my post and it appears harsh and a little simplified. Basically, I just choose pleasant and appreciative clients over stressful, difficult and non-appreciative clients, even if they are profitable.

As Mark said ... the moaners and the groaners with unrealistic expectations are the ones most likely to blame you for everything and claim on your PII. I had a claim against me once, by someone who blamed me for their own shortcomings, but I still paid the price in terms of stress and increased PII costs while it was sorted out.

 

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By Vaughan Blake
11th Aug 2010 19:14

D List Good Payers

Shirley

I don't actually disagree with any of your comments.  I just tend to find that the clients who pay promptly and I recover well on rarely tend to have other unpleasant traits.  I was just curious to see if that was your experience too.  I find that the last minute, awkward, broken promise muddles are also usually the slow paying, bill querying moaners.

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