If you've been in the consulting business for more than a year or two, you've probably had an encounter with a less than honorable client. You've either been stiffed, lied to or had a customer renege on their contractual obligations. Unfortunately, it's comes with the territory of being a management consultant.
In my book, the only foolish mistake is one that you don't learn from (or one that you make more than once.) It's hard to walk away from revenue, but the experienced consultant learns fairly early on that all that glitters isn't gold. That client that looked so good at the beginning doesn't look so good when they're 60 days late with your payments and paying you isn't one of their priorities.
Qualification is part of any good sales process. You should be qualifying for budget, authority to sign a contract, a need for your services and a current timeframe for implementation. The only problem with this qualification process is that it doesn't identify deadbeats, chiselers and lowlifes. Here are some ideas on how you can avoid clients that will end up being more trouble than their worth (get out your ten-foot pole.)
Step 1 - Get Rid of Problems Before they Become Problems
One business management theory advocates that you get rid of your bottom 10% of clients every year. These are the clients that aren't profitable, are taxing on your people and generally cause disruption in your business. While you need to be professional, it's best for everyone to end these problem relationships. For an excellent article on how to identify toxic clients that you need to fire, I recommend Geoff McQueen's, "It's Not Me, It's You - When To End A Toxic Client Relationship." While I agree totally with getting rid of problem clients, this article is about avoiding problem relationships in the first place.
Step 2 - Listen for Warning Signs
Sometimes we want a deal so bad that we ignore warning signs that are right in front of us. Here are a few warning signs to look out for.
- "We don't have any money." This one's pretty obvious; the prospect may not have any money, but it sometimes can be a negotiating ploy. In either case, proceed with extreme caution. You could end doing a dollar's worth of work for a quarter or you could end up getting stiffed. If someone doesn't see value in what you're doing and isn't willing to put any skin in the game, go find someone who does and is.
- "Our last consultant was terrible - so was the one before that." There are bad consultants out there. But if a customer has a track record of changing consultants like they change underwear, what makes you think that your fate will be any different? These are often people that have unrealistic expectations, which is a big problem for consultants.
"Can you do this project for free? If we like it, we'll hire you." On this one, you can just ignore the second sentence - the prospect is looking for free work. The eager beaver may go for this deal, but will likely end up disappointed.
Step 3 - Make sure the prospect puts skin in the game
Your job as a consultant is to show a prospect that you understand their needs and have the ability fulfill them. If you do this, there's no reason a potential customer should object to putting skin in the game. For example,
- Ask for an up-front payment. Depending on the consulting arrangement, you can ask for 50% upfront and the balance on completion of the project or the first month's retainer fee in advance. If a client has a problem with this, you either haven't convinced them that you can help them or they may not be willing or able to pay you. In either case, walk away if this is a problem.
- Ask for a time commitment or a penalty for early termination. Most consulting assignments involve a lot of work on the front end. If you do the front end work in contemplation of a longer consulting assigment, include a commitment for a 6- or 12-month period with a penalty for early termination.
- Charge an installation fee for the upfront work. This is another way to handle a front-loaded consulting assignment. Charge a fee to do the upfront work and then charge a monthly fee for the ongoing work load.
If a prospect has a problem committing funding to your assignment up-front, it's a sign of potential trouble.
Step 4 - Trust but verify
A relationship built on trust is worth its weight in gold. I'd rather have a handshake deal with a person of integrity than an ironclad contract with a lowlife. Here are a few suggestions to help you avoid problem clients.
- Make sure clients have realistic expectations. In our business, we help consultants generate leads and promote their brands with inbound marketing. The reality of inbound marketing is that it takes time to see results. It's very important for us to find clients that are committed to inbound marketing as an integral part of their long-term business plan.
- Do research on your your prospect. Don't be penny wise and pound foolish - run a Dun & Bradstreet report (or comparable credit research report) to see your prospect's credit history. The small sum you pay upfront is worth avoiding a huge headache down the road.
The vast majority of our clients are great, trustworthy people. But we have had problems with clients that could have been avoided (and will be avoided in the future.) Use these precautionary measures to build client relationships that are valued on both sides.