Toxic Clients: How to Spot One

I grew up on the story of how Infosys politely refused General Electric’s unreasonable conditions in 1995 and walked away from their business when they formed 25% of their revenues and 8% of profits. Mr Narayana Murthy cited as the sign of a courageous and principled organization.

Have you ever fired a client? No? Should you? Because as the Infosys example elaborates a few rare clients are not keepers. But how to spot them? Because a client is usually toxic in a context i.e. they may be perfectly nice in certain situations but turn sour in another environment or situation. Or they may work best with a certain size of partner and you may outgrow them. And I use client broadly – it can be an individual or an organization.

So here are some tips – do feel free to add to them:

1. Price, Price, Price:

This is a client for whom it is only about the lowest price. Nothing else matters. What’s worse, they will demand year-on-year price reductions. Unless your business model is also built entirely on offering the lowest price and nothing else, you will find them rapidly depleting your margins.

2. Fear of commitment:

They like working with you and you enjoy your relationship with them. Things seem pretty good for both of you – yet, the client refuses to commit to a longer term relationship. You have a master services agreement but no annual contract. Just the promise that you’ll get business. The trouble is that without the commitment you can’t invest or plan in advance so you always lurch from transaction to transaction. A downward spiral.

3. I pay your salaries

This is an insidious one that breeds a ‘salaam malik’ attitude within your organization. The client is too big to lose and they know it. They were really nice folks to start with but you’ve put yourself in their control, and they’ve grown into a big gorrilla. Over time this dependancy will reduce your ability to grow, negotiate better rates and expand. Derisk at the earliest! And avoid having a client account for more than 25% of your revenue.

4. I don’t want to work with you but…

These are clients who preface their negotiations with “I have heard bad things about you, but still I will work with you. For cheap.” Hmm. It’s a negotiation ploy, of course, but it is a very strange basis to build a relationship, no? Seems to be devoid of a platform of trust. Avoid.

5. Here’s your tea. Or not.

It may sound very trivial, but it works every time. If a prospect is unable or unwilling to make good on an offer of refreshment/transport/lunch/ or any basic business courtesy watch out. Chances are that they are also not organised enough to ensure meetings and later payments on time! It isn’t that folks with the best refreshments are the best clients, but those who are not good hosts also end up being careless clients.

What do you think? I also do want to stress that it is not uniform – there are lots of variables to this. And in these hard times, is it even worth identifying them?