Business assumptions and habits are often legacies of the past. You do things the way you do because on day one you had a problem you had to solve and that is how you solved it. They have now become your status quo.
Could you change them? Maybe. Should you change them? That depends. In the first part, we explored past structures that continue to influence how you do things now and not necessarily for the good. Here we will explore how legacy clients help or hinder you and what you could potentially do about it.
What are legacy clients?
Legacy clients are the clients that helped you start your business. They bought from you when you only had a couple of employees. They are still with you today. You owe them a lot, and they might even claim you owe them your business’ existence. But they cannot and do not see you as you are now, only as you were back then. And they are not as profitable as your newer clients, as I will explain below.
Margins are bound to be lower for legacy clients. At the time when they happily joined you in your journey to start your business, you charged them based on what you thought would get them to buy, plus a gratitude discount. You did not charge them based on today’s costs, as you could not possibly have known what those would be. In the meantime, your cost base has increased because you added more infrastructure to your business as you grew.
These clients are dear to you. They remind you of that time at the beginning. You are proud they stayed with you and they recommended you to others. Unfortunately, you have outgrown them, you can no longer deliver at the same cost that you used to, and you are frustrated. So, what should you do now?
Here are some criteria to guide your course of action.
Are these legacy clients growing together with you? Have they asked you to develop services for them experimentally that later became cash-cows for you? Is there a possibility that what they are buying from you is key for them and they will grow and continue to offer you volume, albeit at a lower margin?
Have a chat with each of them to see whether that is the case. Then stick around with them, cherish them and boast about them in your company literature with a big testimonial. Ask them to help you with case studies and benefit from the marketing hype generated by that.
Source of referrals
Let’s say they are not growing much in your core product/service areas. They are not delivering volume now and that is unlikely to change. But they have always recommended you to others. Actually, you have built a healthy client base as a result. You were able to charge the referred new clients more, which compensates the low margins of your legacy clients.
What can you do? Firstly, analyse your client base and your pipeline to see how much business they have referred to you. If that is the case and they indeed referred you a lot, enough to compensate for the lower margins today, then keep these clients happy. And ask them for more referrals.
Say goodbye nicely
But, if the legacy clients are not growing and are not referring business to you, it may be time to say goodbye. You cannot afford them, and they may actually be unhappy with you too (that lack of referrals!). You are like a miss-matched couple hanging on together for fear of change, rather than a striking out for a bright new future with someone else. Lose-lose.
… but don’t say goodbye if…
We have seen situations in which the company parted ways with their older, smaller, lower-paying clients and ended up with increased risk. Before you act, consider the following:
- Are you left only with big accounts that individually make up more than 20% of your revenue? Your risk increases exponentially if you ‘fire’ small clients and are left only with such large accounts. If one leaves and you no longer have the fall-back of the smaller ones, you could be in trouble.
- Can you do it very nicely? Will they get upset and start talking negatively about you in the market? Even the smallest client knows someone who knows someone who works with you. If they sense you are ‘leaving them behind’, maybe you should try to continue working with them, improve the relationship and turn them into a source of referrals.
Before you do any of the above, we can help with either analysing your client base and numbers or identifying useful questions to ask your clients. Contact us for a free initial consultation.