The Small Client Problem: A Comprehensive Guide to Solving This Tough Issue

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By Andrew Sobel

Every firm has small clients. Some have thousands of them. Are they a waste of time? Or, potentially, a valuable source of future growth?

Nearly 30 years ago, at my old consulting firm, we had a big debate about small projects. Some partners argued that they were an entry point to a bigger relationship, and that from acorns, oaks would grow. Others maintained that they had low margins, took up valuable time and resources that could be better spent elsewhere, and would not lead to bigger and better things.

So, we analyzed all the small projects we had done over the previous three years. And guess what? We found that all those small projects either led nowhere or they led to more small projects. Exactly why, however, was less clear. Were we choosing the wrong clients to begin with? Were we lousy at turning a foot in the door into a long-term relationship? Did a small, initial project position us as a firm that did small things, and therefore that’s what clients felt comfortable giving us?  Were these particular clients inherently reluctant to use outside advisors except in truly extenuating circumstances?

 In fact, my story does not make a case against doing small engagements. Rather, it highlights how vexing—and complex—the issue really is. The dynamics and options are different, for example, when we’re talking about a small project done for a small client versus one done for a large, well-known company.

And, keep in mind that there’s a structural element to having small clients. It’s very difficult to create a portfolio of only large clients who use you for your full range of services. Yet, saying “yes” to every opportunity isn’t really a strategy. I had a client, a law firm, that was asked to help with a piece of litigation. It would have represented millions in fees. But because they had a small client in the same industry that was paying them a meager $50,000 a year, they were conflicted out and couldn’t take the work.

Most firms do find that many of their small clients are a drain. Their sales costs to get the business are high relative to the revenue they get, there is no leverage or scale, and they take time away from more attractive opportunities.

On the other hand, can you afford to dump all your small relationships? In many firms, these provide 30% or 40% of revenues.

By establishing clear criteria for accepting small engagements to begin with, and using some proven strategies for managing your existing ones, you can do a much better job of handling this problem. Let’s look at how to do this.

When to Accept a Small Project

There are plenty of good reasons to take on a small project. Here are eight:

1. It is a marquis name. Will working for this company, by dint of its market reputation and renown, cast a positive light on your own firm?

2. The client is large enough to eventually support a substantial relationship. Even if the first project or transaction is small, is there potential to grow and expand the account?

3. The project will fuel your innovation and intellectual capital development. Are there aspects to the engagement that are leading-edge or in a new area that will help strengthen your service and product breadth?

4. It will have high profit margins. Will it be highly profitable for you? Or will you lose all of your margin in overruns and high sales costs?

5. The relationship will help develop your younger staff. Would this be a good developmental experience for your professionals?

6. The project is at the c-suite level and focused on a mission-critical issue. Is this work strategic for the client? If so, even though very small, it may be valuable to undertake.

7. It’s a small but high-growth company. Could this client become a real contender in its industry?

8. The client doesn’t trust you and a small project would be a confidence-building measure. Perhaps the client had a bad experience with you or your firm in the past. Or perhaps they are satisfied with their existing providers, and will only try you for something modest and low risk.

When to Reject a Small Engagement

There are many potential reasons to say no—for example:

1. You will be working for a very junior manager.

2. The work will position you incorrectly with the client and in the marketplace.

3. The work is not in your sweet spot.

4. The problem you’re addressing is not a high priority for the company.

5. Having the company as a client would create a conflict and render you unable to take a much better opportunity in the future with a larger competitor.

6. The project will take up too much time and be a distraction from investing in more attractive opportunities.

7. The client is small and unused to using a firm like yours, and it will always feel to them like you’re very expensive.

8. There is no truly compelling reason to take it, such as one of the seven outlined above.

Everyone hates to say “no,” especially to a revenue opportunity. But that’s the essence of strategy—saying yes to the right opportunities and no to the wrong ones.

What to Do With Your Current Small Clients

You need to do a thorough analysis of your small clients, and determine which of the following six strategies makes the most sense:

1. Renegotiate your pricing. Implement a price increase, and see what happens. If the client leaves, it wasn’t meant to be. If they stay and become a profitable, financially attractive client, then you may be a lot happier with the situation.

2. Reduce your cost of servicing the account. It may be that you can design a business model to service smaller clients more economically and therefore raise their attractiveness. Some firms have actually made this their strategy, and profitably targeted the small companies that large providers don’t want or can’t manage effectively.

3. Have someone who is younger or less experienced manage the relationship. It may even be a good experience for them.

4. Renegotiate the relationship. If the client is small, this may not be possible. But if it is a larger company, management may be open to discussing a broader, higher-impact relationship with your company.

5. Drop them. Try to leave on good terms. Explain that your strategy no longer allows you to work with smaller clients. Recommend someone who can do a good job for them.

6. Keep them. If the relationship is highly profitable or perhaps provides other benefits to you—such as community relationships, the ability to help a nonprofit cause, or connections to other high-value prospects—you may be happy keeping them on as a client. But many of your small clients will probably need to be managed using strategies 1-5, above.

In the end, managing small clients is a change management issue as well as a strategic conundrum. Never underestimate the resistance to saying goodbye to a client—sometimes people have the best personal relationships with their smallest accounts. This means you need to win your front-line professionals over to your approach, and carefully follow up to ensure the right actions are being taken.

 


505.982.0211
andrew@andrewsobel.com
Andrew Sobel

I help my clients build enduring relationships with their clients and other important individuals in their lives
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