Letting Go: Evaluating and Firing Clients: Spend Quality Time on Your "A" List Clients
[ILLUSTRATION OMITTED] EXECUTIVE SUMMARY * When a firm hits the critical point of needing talented employees but can't afford to pay the market rate to hire them, it is time to look at reducing the client load. * Evaluating the client list is a healthy process for firms of all sizes and a necessary annual exercise to implement strategy and vision. This can help a firm measure its market rate. * Evaluate clients based on pricing, timing, stress, risk level and overall satisfaction. * A firm is better equipped to establish parameters for new engagements after the current client list has been evaluated. This allows the firm to set a higher standard and will improve its profitability, team member compensation, and general satisfaction for the work performed. ********** An evaluation of your client list is a healthy process for firms of all sizes. As firms change structure, size and expertise, evaluating the client list becomes a necessary annual exercise to implement firm strategy and vision. Some clients can't keep up with the price increases that come with firm growth and, inevitably, a firm will outgrow some of its clients. Or, a firm may choose to keep these clients and avoid the price increases and lose profitability. In either instance, firms need a formal policy for reviewing the client list annually and taking appropriate action. Firms that sacrifice profitability to keep clients will eventually need to add staff to grow the firm but may be unable to offer market salaries to qualified candidates. The solution may not lie in hiring more staff, but rather in reducing the client load or redistributing the amount of time spent on each client's work. While visiting a variety of firms across the country, I have observed a direct link between staffing issues, salary issues and client evaluation. As a former recruiter, I understand the difficulties smaller firms encounter in competing with larger firms in terms of salary The demand for the existing talent pool continues to outpace supply. This leaves firms in the difficult position of needing to fire clients that do not fit the firm's direction. RANKING YOUR CLIENTS Each firm must know and understand its clients to determine if they are worth keeping and if the firm is charging the market rate for its work. The AICPA Private Companies Practice Section (PCPS) offers a standard Excel template, available to section members, that is easily adaptable for evaluating a client based on pricing, timing, stress, risk level and overall satisfaction. Clients are ranked A, B, C and D. An A is the most valuable client, and a D is the least valuable. Ideally, a firm does not want D clients and the C clients are borderline--not necessarily worth letting go. Once the C'S and D'S are addressed, the firm can focus on converting the B clients into A's. Practitioners should spend the most quality time on the A clients, providing all the work they possibly can for them. The template includes six key areas for rating each client: Job Risk/Complexity. This rates client risk and the potential liability a client brings to the firm. Whether it is an audit client in a high-risk industry, management attitude or lack of controls, or a tax client that constantly pushes the limit on deductions and income reporting, some clients pose a higher risk to the firm than others. Rating Scale: 5 = No Risk; 4 = Below-Average Risk; 3 = Average Risk; 2 = Above Average Risk; 1 = High Risk. Job Recovery/Profitability. Each firm must decide what recovery percentage is acceptable. Many firms determine profitability based on hours billed and amount of effort put into a job. The PCPS has a recommended recovery percentage in the scoring system. Firms that look at client profitability based on other key performance indicators (KPIs) can change the criteria to reflect their own KPIs. …