Why & How to Prune Your Client Roster for Agency Growth

Sei-Wook Kim (00:02.518) On today's episode, we'll be talking about the importance of reviewing and pruning your client roster as your agency grows. We'll talk about what factors should be considered and why it's important to be proactive in managing the roster of clients. Peter Kang (00:12.315) All right, so it's hard enough to get new clients and to build a client roster. But today we're talking about getting rid of clients. Before we dive in, why is it important to even think about trimming, slimming down, or pruning your client list? Why should agency leaders even think about this? Sei-Wook Kim (00:42.765) Especially if your agency continues to grow, you may have taken on clients in the past that may not be the best fit for the company now in the current iteration, for a variety of factors. We'll definitely go into more detail. But I think it's just good to assess your client base on a regular basis, because just because they are the people that are paying you now and supporting your business doesn't mean that they're the right fit for the next phase of your growth. Peter Kang (01:22.382) What's funny is, if you think about the very word pruning — when I think about that word, I think about trees, and how you cut off the less healthy or dead branches, and that allows the tree to grow more healthily upward. I think it's a similar analogy for agencies. In order for agencies to thrive in the long run, you have to make some cuts. With that, maybe we should dive into some of the factors that go into making these types of decisions. The first one — we could start at a high level — is whether a client is a good strategic fit. What do you think that means, and what should people think about when they determine this as a criteria? Sei-Wook Kim (02:22.998) Part of this is first understanding what your core ICP — ideal client profile — is for your business. Whether it's specific to an industry, size of client, or even a technology or platform specialty, does this client align with that vision for the business? And your ICP may have evolved over time. So from the current state of where you're trying to go, is that a good fit for your overall roster of clients? Peter Kang (03:02.424) One good measure on this end is the way you're marketing outwardly to attract new clients — whether that's a focused positioning to a certain size, a certain specialty you offer, or a certain vertical you play in. How different is that from the client on your roster? If there's a huge gap — let's say you're more mid-market enterprise level but you have some SMB clients in totally different industries — I think that's a good marker and a starting point for realizing a client might not be a good strategic fit. Sei-Wook Kim (03:47.975) We went through that evolution with our agency Barrel as it went deeper into commerce and Shopify as a platform. Over the years we were making websites for a variety of different clients on a variety of different tech platforms. At a certain point, the team got fragmented internally — some people had more WordPress expertise, some had more Shopify expertise, and some were blending between the two. So even how we did projects from a process standpoint was getting a little muddy on what's the best way to handle a project, but also from a training standpoint it got very confusing to manage. Peter Kang (04:38.329) Yeah, 100%. Let's move on to the next factor, which is gross margin. You could just think of this as profitability. Are the clients profitable after all the delivery hours and costs? Are the engagements generally profitable? Is the whole relationship over the course of the year profitable? This is something we should definitely take into consideration when thinking about whether a client is someone to keep or not. Sei-Wook Kim (05:23.532) Profitability is — sometimes you might look at the revenue and say, wow, this client is paying us X dollars a year, X dollars a month, and it's hard to lose that revenue. But if you're not making money on it, it actually might be healthier for you not to have that revenue at all. Or just really think about what is it about the client, or how we're delivering the work, or how we're structuring the team, that makes it not profitable. It's not cut and dry to say if it's not profitable you should cut them. It's just about assessing it, having that data to make that decision. Peter Kang (06:04.536) This is a really tough one, because you can argue some clients that get really big — over time the profitability might be thin, but in some respects they are paying in absolute dollars amounts that allow you to make payroll and keep certain people on staff. That can get ossified so that you feel like this is the way it is and we really can't lose this, because that would mean people losing jobs. It makes it really hard to move away from such clients. In fact, we've been in this position where you feel like you have no choice — you just keep riding that relationship until the client lets the agency go. But I do think there's a case to be made if you're really bold and want to be proactive. You can look at the gross margins and make the decision that in order to build something profitable in the long run, you might have to forego some of these relationships in order to make room for the more profitable clients. Sei-Wook Kim (07:16.994) Definitely. And some of this could be just taking a look internally and seeing, is this from over-servicing — where you're losing margin because you have this relationship for a really long time and whenever the client asks for something you want to give them something extra? It may not be the client that's a poor fit. It could just be how we're handling the relationship and the delivery on it. Peter Kang (07:41.752) Yeah, absolutely. Let's move on to the next piece, which is more about the potential of a client relationship. One of the things we always talk about with our agencies is account expansion potential. You win a client, you get that first engagement — but what are ways to deepen that relationship, deliver more value, and increase the amount you might be able to make from servicing them? How should agencies think about this when evaluating the client roster and deciding who to keep and who to let go? Sei-Wook Kim (08:22.666) A lot of this comes down to your business model and what your relationships ideally look like. In some businesses it's very much project to project — a very fixed, defined scope of work, you move on, and the client doesn't really need your services beyond the initial project. If you look at it from an expansion potential standpoint, probably not a lot of expansion from each specific client. But if it's very much an account-driven long-term retainer type of relationship, you should be looking at how you can either increase the retention and longevity of this client, or how you incrementally add on a new service offering and increase the scope of what you're doing for them, so that over the long term the value of that relationship continues to grow. Peter Kang (09:23.702) When you look through that list of clients and find ones that clearly feel like dead ends — and you're an agency that really wants to grow these accounts — how should they think about it? Sei-Wook Kim (09:39.832) It comes down to the amount of resources you're putting behind an account. Typically in a company structure where you have ongoing relationships, you might have account managers dedicated to maintaining a roster of clients. Is their time better spent on the clients that have more potential for growth? It almost comes down to an allocation of time and opportunity cost equation on where you should put your time internally. Peter Kang (10:15.51) I feel like with some of these clients you can be upfront with them on the nature of the relationship going forward. The client might come in — we've seen this many times — and say, hey, I have this big redesign project, but afterwards our team is going to handle everything internally and we're not going to need you guys. And that's fine. That clarity helps the agency plan for how much to invest post-launch of the initial project. Sei-Wook Kim (10:43.848) Yeah, and in some instances, having a steady retainer that doesn't necessarily grow but is consistent and keeps going — that's still valuable. Just because it's not growing isn't a reason to prune a client. Peter Kang (11:07.114) No, that's right. The context really matters, and so does the business model. Let's talk about relationship quality as another factor. It's almost like — who do you have access to on the client side? Decision makers, which level of leadership, and what's the depth of that relationship? How much does that factor into whether you keep a client or not? Should this really be a driving factor? Sei-Wook Kim (11:42.312) Where that comes into play is — let's say you're working with a director-level role at the company, a director of ecom or director of marketing, but then there's a C-suite that ultimately is the decision maker. Your day-to-day interaction is with the people working on your accounts and projects. But a factor that comes in is when there's a lot of turnover on the client end, and if you don't have another decision maker or stakeholder at the company who can support you or be your advocate, you're essentially repitching the work every single time to the next person that comes in. There could be a lot of time and energy lost in those efforts. I would say this isn't necessarily a reason to prune a client, but more an effort to think about how you go more upstream to the true decision maker at a company and build that relationship. Peter Kang (12:51.824) Yeah, absolutely. Where you really want to make drastic changes is if the relationship quality has deteriorated because of bad behavior — maybe unacceptable behavior from a stakeholder on the client side. It might be the way they're communicating to the team, or the way they're just not following up on their commitments, or there's some degree of politics, or just the way they operate that might be at odds with the values and ethics of the agency. In that case, relationship quality could be a factor, and it's just a call you have to make on whether we care more about keeping our sanity and not having to deal with this type of person. Those are rare, and it's worth surfacing and discussing before making it a point. But there are gradations of it. Sei-Wook Kim (14:08.409) The test of your relationship quality is, if you have feedback around things like that, do they trust you and take the feedback and have a conversation about changing behavior, or address any concerns on that end? Peter Kang (14:24.637) Yeah, absolutely. The next one is maybe a huge factor. We're calling it payment behavior. Do they pay on time without discounts, friction, or anything else that might slow it down? You have a view into how our agencies handle payments — what are your thoughts on how payment behavior should determine whether you keep a client or not? Sei-Wook Kim (14:50.631) We've made this mistake many times in the past. The person you're working with is often different from the person paying your invoices. But usually when you see a repeated pattern of overdue invoices, invoices stacking up, or even pushback on invoice amounts, those are red flags. The worst-case scenarios we've seen: a client stacked up months of overdue invoices while we were still working with them day to day. We thought there was a good relationship and a lot of work to be done. At a certain point they just refused, or were unable to pay months of invoices that we had to write off. So all of that time — let's call it six months — we were working with a client, paying our team, paying our expenses, but we never collected on the invoices. Now we give clients a little bit of leeway, but if anything goes beyond a few weeks or a month of being overdue without any communication, what we advise is to pause work or escalate it so that some action can be taken. Peter Kang (16:24.476) Yeah, 100%. Agencies are not banks. We're not here to lend unlimited credit to our clients. And I think this is a good reason to be thoughtful about how you engage clients from the start on payment terms — just get a gauge for their ability to pay. You can go even further and do credit checks on clients, especially ones you might not have a proven history with, do some reference checks on that front. This could be fatal. If you don't make the right decisions around this, you could be working with somebody for a whole quarter or two, fronting all the costs in that period, only to not get paid. That can wipe out a business. There are escalation paths — after a client doesn't pay, they get their warning, and then if they finally make good on the payment, sometimes we might change the way we do payments and not even start work until we're paid in advance. Can you recall situations like that? Sei-Wook Kim (17:59.167) Yeah, definitely. If there's a repeated history of late payments, we've switched and said, for this next engagement, let's get paid upfront before we move forward. Some clients are amenable to that. Others say it's not a good fit and let's part ways. The other thing to touch on is, if every invoice has some kind of friction — questioning the amounts, questioning the time spent on an hourly engagement — if every single opportunity where they have to pay comes with tension or friction, that could be a sign it may not be the right fit. Peter Kang (18:57.19) Yeah, and it really comes down to what your tolerance is for that kind of pain. Some clients are going to have really aggressive procurement departments that want to audit all your timesheets and go into the nitty gritty of, hey, are we paying the right amount? You might just accept that as the cost of doing business and staff up on your side to manage through it. But then you might have other clients who, for whatever reason, question the value of the work even though they agreed to it upfront. That could just be a mismatch in collaboration — it could just be that it's not a good fit for what they need. In that case you can selectively take yourself out of that situation. Sei-Wook Kim (19:53.32) Definitely. And there's some part of looking inward to say, is this a gap in our project management or account management, where it should have been clear so that by the time the invoice came around, there should never be a question about the amount that should be paid. Peter Kang (20:07.473) Yeah, absolutely. And generally, before being too quick to blame the client and say they wronged us or it's their fault, there's always an opportunity to look at your own behaviors and processes and see what we can do better. All right. The next one is operational load. It's a factor about clients where, for whatever reason, there are more fire drills than with other clients — more reactive change requests, last-minute stuff, a degree of extra hand-holding required, a lot of repetition of instructions or information that needs to be provided. That is very taxing on an agency. How should agencies think about clients they'd term difficult, and whether or not to keep them? Sei-Wook Kim (21:30.636) This is a big one that the team feels the most. With difficult clients, oftentimes everything is an emergency, everything is urgent, everything needs to get done ASAP. Even the tone of feedback or how people talk to the team — this all factors into what I'd call the mental load of a client. The ultimate impact is your team could feel burnt out by them, it can cause turnover, you can lose valuable team members. Real impacts from these types of relationships. And honestly, it starts with the conversation — sharing the feedback with the client, saying, hey, this is the perception, what can we do to help improve it, whether it's we need longer turnaround times, we need to prioritize what truly is urgent and a fire versus what can wait a day or two. Start there and see what the reaction is, and see if the process can improve. Peter Kang (22:59.766) There is, of course, things the agency can do to make it smoother, even with more high-touch clients. But I do think there is a line at which you have to figure out, hey, is this worth it for the long-term sanity of the team members working with such a client, and at what price would you step away? Being decisive in this manner — you can see the upside. If you're decisive and you go, hey, this client is causing too many headaches, they just don't have their stuff together, we've recommended they get a project manager or some kind of coordinator on their side but they haven't, so we're dealing with four different stakeholders and it's a mess all the time with contradicting instructions — for an agency leader to be proactive and make the call that we're going to end this relationship goes a long way with the team. You're going to take a financial hit from that decision, but at the same time it signals, hey, we're here to make sure you guys are respected, our processes are respected, and we're going to stick to our guns when it comes to serving clients the way we know how. Sei-Wook Kim (24:08.194) Definitely. And I'll touch on this later, but this is the job of the agency leader. You can't let the team make these decisions and be the ones to tell the client, hey, we're not a good fit, let's move on. If you don't make the decision, it could cause burnout and turnover. If you do make a quick decision, you can build a lot of trust with the team that you're looking after them. Peter Kang (24:47.566) That is such a good point, because if you force those decisions downward, the team member on the project is going to be faced with their own decision of, do I tell off the client or do I just quit? You're essentially forcing them to make that choice. Excellent point. Let's move on to the next one — we're calling it case study value, or marketing value. When you're looking at your client roster, do they add brand credibility? Does the work you're doing with them lead to a showcaseable case study, something you can market and use to attract more similar clients? It's that question of, is this new logo a good one that's going to bring in more such clients? How much of a factor should this be? Just because a client has low case study value — does that make them less appealing? Sei-Wook Kim (26:09.395) It's probably a more straightforward call when deciding to take on a client — saying, all right, they can bring a lot of value to our case studies, and when we go to pitch more work it's a really good brand we can reference. But I don't think every single client needs to be that. It could be an emerging brand that's aspiring to be that, and your job is to help them get there. Or they can just be a lesser-known player in the space who, if they're a great client for all the other reasons we've talked about — consistent, they value the work, you add a lot of impact to their business — I wouldn't say that's a reason to prune a client just because they're not a great visible brand. Peter Kang (27:23.809) It's interesting — I think about Apple a lot. We've had peers, other agency owners, who've worked with Apple, and they're pretty notorious for not letting agencies ever talk about the work they do with them. It's always interesting because, do you say no then because of that? Most likely not, because if the project is lucrative enough and the type of work is interesting, that's probably a more overwhelming factor. You're always going to have a mix of clients that have high case study value and others that don't — whether because you can't talk about them or they just don't lend themselves to good storytelling. Sei-Wook Kim (28:03.031) Yeah, we've had our handful of clients where we've done a lot of great work, and as part of the contract we just couldn't share it publicly — but still a really good experience for the team, and through other means we can share the work privately and highlight our impact for those businesses. Peter Kang (28:23.319) Yep. Let's round this out by talking about some other factors around risk. When you're looking at a client roster and potentially looking to prune, how much does client revenue concentration matter? Should that be taken into account as a reason to prune a client? Sei-Wook Kim (28:50.695) Let's say one big client takes up a significant portion of your revenue — say half of your revenue is one client. In some ways, it's about how you grow all the other accounts so that percentage drops as a relative number. It's definitely a risk for the business, but I wouldn't say it's necessarily a reason to prune a client or scale it back to decrease the percentage. Peter Kang (29:27.004) I agree. Take that relationship as far as it can go and just grow the other relationships to make sure the concentration gets watered down. Any other risks — legal headaches of any sort with an existing client, or reputational issues? If a client's founder has gotten into some scandal or trouble, at that point is it best to resign from that account? Sei-Wook Kim (30:07.907) Those are tricky things you just have to think through with your leadership team and your company values. Is this a PR thing where the scandal is overblown and you have inside knowledge of what actually happened and it might blow over quickly? Or is it a fundamental issue where your team members aren't happy about it, they don't want to work on the account, and there is a genuine reason to part ways? Reputation is very important to consider. From a legal perspective, if there's additional risk in working with a client — for example, if a client gets sued and any of the work you did exposes you to unlimited IP liability — those are risks you probably agreed to when taking on the project. The goal is to try to cap that even before it starts. Peter Kang (31:27.154) What comes to mind is sometimes the BD team might oversell an agency's capabilities, do a good job landing a client, only to find that the project is just too much for us to handle or we just don't have the capability or the confidence to deliver something that works. At that point there are a couple of avenues — you might bring in a subcontractor who has the experience and capability. But there's also that more nuclear option, which is to go to the client and say, hey, we actually can't do this, we're going to have to take ourselves out. Not the greatest from a reputational standpoint, but there are instances where it could actually save you in the long run, because then you're not part of a failed project or something that detrimentally impacts the client. Sei-Wook Kim (32:33.586) Yeah, sometimes it's better to bow out and take the hit immediately versus a much bigger problem down the road. You can return money, you can come to some kind of natural pause, and also find and recommend another partner that could be a better fit in situations like that. Peter Kang (32:57.61) Yeah, awesome. Those are a bunch of factors to take into account when thinking about pruning the client roster. Of course, we're all trying to grow our client rosters and make them healthy. At the end of the day, you've got to make some tough decisions if you're going to do it right. Good stuff. Thank you everyone — we'll see you next time.