Hidden costs of client loss
Besides the immediate and obvious costs of losing a client – most notably retainer fees which, depending on the sector, can be close to 6-figures, and deal fees which can dwarf the retainer in a busy year – there are significant less obvious and even hidden costs which are damaging to a business. Here are five of those hidden costs.
1. Reputation damage
There is no doubt that quietly losing an under—performing client can be a bit of relief, but more often than not losing a client comes with it not just a financial blow but a reputational one. Competitors smell blood, peer-group companies wonder what went wrong, and other commentators speculate as to the reasons, frequently concluding fairly or not, that the delivery or service wasn’t good enough. As hard as the formal and informal PR machine work to limit this sort of fall-out it is very hard to come out of a client-loss looking good.
2. Tribalism
Depending on the structure of your organisation there may be several different people or units responsible for delivering the service. When a client leaves, or replaces you, human nature dictates that there will be an element of finger-pointing and defensiveness. While this may be short-lived it can facilitate a period of poor cooperation between teams, with personnel retreating into their safe-places and collectively blaming other groups for the loss.
3. Low morale
As bravely as individuals or teams will portray their personal and business response to a client loss we can all be affected by it.Notwithstanding the risks of tribalism or finger-pointing as noted above, employees or teams who were responsible for nurturing or delivering service to the relationship client may well embark on a period of introspection, even doubt, as they ask themselves what went wrong. Losing an important client, one that a firm was proud and excited to work for, IS depressing. Low morale can become a draw on resources and energy and leave employees questioning their individual and collective value.
4. Departures
While it is unlikely to happen immediately, the loss of an important client can be the catalyst for certain employees to consider a move.Consider a Technology analyst at a broker or PR firm. Their research has been highly rated by the client and they are the key to the relationship, but other aspects (for example sales or trading) have been underwhelming and the client has decided to move on. The analyst has been approached now and then by competitor firms. The client company certainly wouldn’t discourage the analyst to move. The loss of one client could seriously impact all your (in this example, Tech) clients if it leads to the loss of a valued employee.
5. Cost of filling the hole
Unless for some reason the decision has been taken not to try and replace the lost client with another, then considerable effort and resource will be deployed to fill the hole. Of course this effort is to some extent ongoing anyway, but the extra time researching, courting, pitching to, and sometimes even hiring people in order to have the right team ready to deliver the service, is costly. It also diverts resource from other priorities.
There are a myriad of obvious and hidden costs to losing a client. One way to avoid them is to make sure you test the quality of your client relationships; openly, honestly, and independently.
