As a business grows and evolves, it is only natural for relationships with clients to change as well. But what can a business do when it starts to outgrow its old clients? This is a question that many business owners find themselves asking, and the answer isn’t always an easy one.
Outgrowing older clients
Businesses often find that as they grow, their relationships with certain clients need to change. This is often true with older clients, especially ones that have been with a business since it first began, who no longer fit within current and future business objectives and cease to be profitable.
It’s a natural reaction that when a business is young, it may spend a large amount of its time over-servicing their clients in order to develop and build a working relationship, and usually this is quite easy to do this as the client base will be fairly small. But once the business has started to grow and gather more clients, it sometimes starts to show that it isn’t as profitable to continue over-servicing these older clients on the scale that had been previously dedicated, as new clients will also demand high levels of service from the business.
Another type of client relationship that needs to change as a business grows is one with a customer that has remained on a company’s early pricing structure, even as the business grows. As a business and its offering grows, it’s natural for its pricing structure to change to reflect this. While any new customers will be charged according to the new pricing structure, older clients will effectively be receiving the same, improved service for a lower fee, making them less profitable.
What can businesses do when they outgrow older clients?
Sometimes it may be possible to keep servicing certain older clients, even if they aren’t profitable. However, more often than not, as a business grows, the relationship with these clients needs to change.
When deciding what to do with longstanding clients, it is important to ask the following questions:
- Are they profitable for your business?
- Is there the potential for them to grow, and bring you more business in the future?
- Do they refer more work to you from other businesses?
- Do they demand more than what they are paying for?
- Do you have to make exceptions to your normal rules for them?
If, after answering all of these questions, it appears that the relationship needs to change, businesses have a number of options they can pursue.
Inform the client of your new pricing structure
If profit is the main concern, and an older client is paying less than they should, consider giving advanced notice of a price increase. It is never advisable to increase the price straight away, as this is likely to upset clients and damage the relationship. Instead, contact the client and inform them of why you are having to undertake the price increase and give them a few months’ notice of the impending increase to allow them to decide if they want to stay with you after the increase or take their business elsewhere.
In the vast majority of occasions older clients will be understanding of the changes needed and will agree to move on to a new pricing structure. If they are not willing to do this, there are still options which can be explored.
Come to a new arrangement
You can re-evaluate the scope of work they are receiving, and adjust it accordingly to fit their pricing band and your business objectives. If they don’t agree to this, the other option is to hand off the relationship to a more suitable company.
Terminate the contract
While there is the option of terminating your contract immediately, this should only really be used in extreme cases, as a last resort. Usually, with a bit of thought and planning, you can come to a reasonable arrangement that will work for both parties.
The most important thing is to give these clients options, but not to be tied down by them. Just because they have been with you for a long time, doesn’t mean your business has to suffer because of them.
Aldermore offers a range of business finance solutions, designed to help growing businesses. Get in touch with the team today to find out more.