If you see a red flag waving on a beach, it’s a warning not to go into the water. It could be that predators were seen swimming near the shore or there’s an expected change in weather and the waters could get rough.
Whatever the reason, the management of the beach wants you to stay out of the water because it’s not safe.
Red flags don’t only show up on the beach. Metaphorically, red flags can also be raised in potential business opportunities.
Unfortunately, we sometimes ignore these red flags because our emotions get the best of us. The prospect of signing a new client is always an exciting time. On the other hand, if business hasn’t been good, we become desperate and take more risks.
When we’re emotional, it’s hard to logically process the factors that need to be considered to arrive at a rational and educated decision. It’s a case of the heart overruling the mind.
Keep in mind that we don’t live in a perfect world. In the same way that there are successes and failures, opportunities and obstacles, leaders and laggards, there are also good clients and bad clients.
If you see a red flag waving about a prospective client, don’t ignore it. Instead, take note of it. Otherwise, your business might end up getting fed to a hungry predator or get torn up like a paper boat in a tempest.
8 Red Flags To Look Out For When Qualifying Clients
We’ve been blessed with having wonderful, amazing, and thoughtful clients since we started Mountaintop Web Design years ago. However, like other businesses, we’ve had our share of bad clients as well.
Landing bad clients is just one of the many risks of starting a business. But if you can spot the red flags right away, you might be able to steer your business away from a perceived blessing that eventually turns out to be a disaster.
1. Misalignment in Values, Purpose, and Vision
The best clients are those who look forward to strategic partnerships. A strategic partnership is an arrangement whereby both parties collaborate for the purpose of achieving mutual success.
Strategic partners don’t view the arrangement as one a client and a service provider. Instead, they view it as a partnership between co-equals where interests are shared, respected, and protected.
These clients are aligned with your values, purpose, and vision. They acknowledge your company as a for-profit business with unique goals and objectives just like theirs.
For this reason, they act and decide with your interests in mind. Good clients know you want the best for them and they’ll reciprocate by wanting the best for you. These types of clients know that for their businesses to succeed, they need a good partner – you.
In contrast, bad clients are those that only care about their interests. They see your business as one that needs them more than they need you. Rather than take a protagonist approach, bad clients become antagonistic.
Bad clients work on a win-lose proposition with you on the losing side. They’ll incessantly negotiate for more favorable terms even though contracts have been signed.
They’ll use veiled threats such as “We received other proposals” or “We’re considering taking another direction after this initial engagement with you.”
If you have clients that exhibit these types of behavior, it might be a good idea to call their threat and end the engagement. Any losses in income are incomparable to potential losses in the future if you continue to keep them as clients.
2. Exhibits Unprofessional Behavior
In some cases, you can spot a red flag the second you meet the client.
- The prospective client is late for the first meeting.
- He offers no explanation or apology for being tardy.
- He doesn’t give you a firm handshake, a sincere greeting, or look you in the eye.
- His cell phone isn’t on silent mode and he answers texts and calls in the middle of the meeting regardless of who is talking.
- He constantly fidgets on his cell phone and seems distracted throughout the meeting.
- He tends to cut you off and talk to his associates about other matters.
- The prospective client tends to “name drop” during the conversation to try and intimidate you and gain an advantage.
Don’t disregard these behaviors as inconsequential. If you ignore these red flags, they could lead to serious consequences for your business. Clients who show unprofessional behavior will continue to conduct themselves in such a manner throughout your engagement.
These are signs of worse things to come:
- With a lack of regard for your schedule, the client will continue to be late for meetings.
- You’ll experience situations where payment for your services is delayed.
- The client won’t return your calls, messages, or emails.
- He won’t respect timelines and will imply that if he’s late in submitting documents, the problem was probably from your end.
- He won’t give you the courtesy of an explanation of why he couldn’t return your messages or why he was late for the meeting.
- He’ll act or make key decisions without giving you prior notice.
- He expects you to be available 24/7; at his beck and call.
A client who behaves unprofessionally believes he is the more important party in the agreement. He thinks you should be more understanding of his actions and realize that without his business, you’re nothing.
3. Brazenly Disagrees With Your Terms and Conditions
Negotiations can be a slippery slope because each party to the agreement has different goals, targets, and expectations. It can feel like a game of tug-of-war where one party wants to gain an advantage over the other… but it doesn’t have to be contentious.
As we mentioned earlier, good clients are those who recognize you’re running a for-profit business that has bills to pay. They are willing to compromise on some of their demands to help you meet your goals and arrive at a middle-ground where both parties end up with a win/win proposition.
Bad clients will push for onerous deals. They want the client-service provider arrangement to tilt heavily in their favor and will play hardball:
- No to Upfront Payment. Upfront fees are an industry standard for service providers. The fees are used as working capital and as a security deposit in the event payments are delayed.
A bad client will refuse to agree to upfront payments because it shows a “lack of trust”. Some will say that to request upfront fees is tantamount to questioning the reputation of the company.
Trust is a distinction that is earned, not given. You can’t establish trust after the first meeting. It’s slowly built up after both parties go through many challenging times and thrived.
Agreeing to forego the upfront payment will only benefit the client and leave you vulnerable to uncertainties.
- Thumbs Down Any Provision That Implies Accountability. A contract will always feature the obligations of each party.
It’s a red flag if the prospective client asks you to remove provisions that imply his accountability such as “penalty charges in the event of payment delays”.
Yet, he will insist on incorporating a Performance Clawback condition whereby if you fail to meet a deadline, your fees will be reduced by a certain percentage.
- Negotiates for One-Sided Payment Terms. Finalizing payment terms can become a deal-breaker. If the prospective client proposes longer payment terms, politely decline and explain that such an arrangement will compromise your cash flow.
If the client insists and insinuates that the current payment terms will affect his cash flow, it shows he doesn’t understand the importance of having individual profit centers.
Assuming your cash-in-bank is sufficient to support 12 months of operation, ideally, each client must operate as its profit center.
In other words, don’t use income earned from other clients’ projects to fund another client’s project because you won’t know which ones are the most profitable for your company.
A prospect who doesn’t understand or refuses to acknowledge the importance of profit centers for a business is a gigantic red flag waving vigorously in the wind.
To be clear, it’s normal for clients to play hardball. However, a good client is willing to soften his stance because he respects your organization and wants you to also benefit from the arrangement.
4. Commoditizes Services By Creating Pricing Competition
It’s perfectly fine for clients to request proposals from other service providers. A business should always have a short list of 3 to 5 potential service providers to consider before making a final decision.
Having a short list of candidates allows the business to compare and contrast service providers. You’ll be able to assess which service provider is most capable of handling your project.
Unfortunately, some prospects use quotations from other service providers as leverage in the negotiations by creating pricing competition.
The client representative will say:
“Your proposal was the most expensive of the 5 proposals that we received. There’s no difference in the scope of work.”
The red flag will be firmly planted when the client representative will add:
“Better the offers of the other service providers and we’ll award you the contract.”
When pricing your services, you have to factor in discounts. You have to expect that prospects will request a discount to improve their bottom line. That’s normal in the course of negotiations.
If what the client is requesting is unrealistic and will affect your ability to support the project, decline the project, extend your appreciation for being considered, then, leave the negotiating table. Unrealistic pricing demands commoditize your services and show utter disrespect for your business.
“Reasonable” and “Cheap” are two different things. You don’t want to have businesses see your business as “cheap”.
There’s a reason why every business has a UVP – Unique Value Proposition. You offer clients services that are uniquely different from your competitors. Dropping the price to cutthroat levels is unprofessional, unacceptable, and unethical.
5. Pitches His Vision of the Future
Some red flags are more like snakes in the grass.
Throughout your presentation, the prospect remained quiet. Sometimes he would nod in quiet agreement or give subtle expressions of approval such as a smile.
Now that you’ve finished your presentation, the prospect starts to speak.
He’ll give you glowing reviews of your presentation, butter you up with praises, and let you know he’s looking forward to a successful, long-term relationship with your company.
“But…”
He’ll present his vision of what the “long-term relationship” will look like in the future. Imagery will include dollar signs, bigger office spaces, more clients, fancier suits in board meetings, happier employees, and fatter bank accounts for everyone.
The prospect will reiterate that his company has no problem paying you for your services but suggests that you “think big and long-term”. Rather than pay you for your services, he offers the following options:
- Generous performance-based commissions
- Profit-sharing arrangements
- Awarding of company shares assuming annual targets are met
- Giving your company multiple referrals
For example, a prospect would get your agency to design a top-end e-commerce website for their company with all the bells and whistles.
However, they’ll refer to you as their “partner” and sell the idea that the website is your “equity investment” in the partnership. If the e-commerce website doesn’t generate the target revenues, you don’t get paid because according to the prospect…
“We don’t make money.”
If they can get away without paying for services, they will. Can you imagine how these companies treat their employees?
It doesn’t matter how big and important the prospect is in the industry. Don’t sign clients who operate like snakes in the grass lurking for prey. These types of predatory practices might be the reason why they became big in the first place.
6. Allergic to Contracts or Documentation
Essentially, a business arrangement is a relationship between 2 parties. As with all relationships, the only thing certain is its uncertainty. At the start, everything seems perfect. However, in the course of the engagement, situations can arise that contribute to the deterioration of the relationship.
Don’t assume that problems won’t happen that will put the relationship to a test. Without the benefit of contracts that define the roles, responsibilities, and obligations of each party, situations can go from bad to ugly right away once things start to turn sour.
There’ll be plenty of finger-pointing and blame calling going around.
Suppose a client is hesitant to sign contracts such as a Service Level Agreement, Memorandum of Agreement, and Confidentiality Agreement because he says it “shows lack of trust”, “lack of faith”, and “puts their integrity into question”.
In that case, you might have to think twice about the engagement. Contracts put both parties in their right place. The lanes are divided, defined, and delineated.
These contracts are negotiable and are designed to protect the rights and interests of both parties. A prospect who’s allergic to contracts may be afraid of leaving a paper trail that tracks down the company’s schemes.
Always operate from a win/win perspective. If the prospect doesn’t appreciate your position, then, the prospect isn’t worth taking the risk.
7. Creates a Sense of Urgency
“We need the website fully operational in one month. If you can commit to our timeline and get this done according to schedule, then, we’ll hire you as our web developer.”
Now, hold on. We don’t know what we’re getting ourselves into.
As the web developer, we want to make sure we have the right people onboard for this project. We have no idea what your business is about, what you want the website to accomplish, as well as your business goals and expectations.
We haven’t even talked about our terms and conditions, processes, and fees. The budget is important so we’ll know if this project will be worth our time.
A prospect who creates a sense of urgency will back you up against the wall. There’s no room for discussion or negotiation. Because of the supposedly tight timeline, the project becomes a “take it or leave it” proposition.
Don’t allow yourself to be pressured. Managing a project is stressful enough as it is. You want to address all possible pain points before getting started. Otherwise, if the project crashes and burns, you’ll be called out as the Fall Guy.
8. Client Has Gone Through Multiple Service Providers
When a prospective client reveals he has gone through multiple service providers, the message he’s trying to convey is that he wasn’t satisfied or impressed with any of them.
Ask the prospect who the service providers were. If he gives you the names of the companies, reach out to them and get their side of the story.
If he refuses to give you the names of the companies… well… that’s another red flag there. After all, if you have nothing to hide, you have nothing to lose by agreeing to a reasonable request.
Assuming that it’s true, regardless of the reasons why the arrangements didn’t succeed or push through, a prospect who has gone through multiple service providers isn’t a good look.
Failed engagements with 2 service providers are acceptable. But 3, 4, or 5 service providers? Something’s not right if the prospect can’t hold on to a single engagement.
The best way to find out is to schedule a preliminary meeting. Now, if the prospect responds that you should first submit your business papers before a meeting can take place, that could be red flag #3.
Conclusion
Other than sipping a good, piping-hot cup of coffee, one of the best ways to start a day is by reading an email from a company that’s interested in hiring your services.
It’s flattering to be recognized and considered for a project. But until such time that you are able to qualify the prospect as good or bad, the email remains simply an inquiry.
In a future article, we’ll share our tips on how to qualify good clients and include a process that you can use for your business.
In the meantime, moderate your expectations, and don’t hesitate to pull the plug on the proposed venture if you observe any of the red flags discussed in this article.
This prospect won’t be the last one. As long as you do a great job with your other clients, there will always be opportunities knocking on your door.
And if you need a website for your business or a redesign for your current website, give us a call. What we can assure you is that you won’t find any red flags waving at you when you’re dealing with us.
Feel free to share this article with your friends and associates who are stressed out by difficult clients.
