Client Relationship Management

August 9, 1999
by Pat McClellan

or... Contracts: Who Needs 'Em!

Recently, a freelancer friend consulted me regarding a contract for a job he is working on. The contract specifically states that the job would be complete within 6 weeks, upon which final payment would be made to him. The problem is that the client was delayed for a couple of weeks in supplying the necessary materials to proceed with the work, so the job has gone over-schedule. Now, he's concerned that upon completion of the job, the client might claim that the work was not completed on time and therefore default on final payment. This kind of production delay is a fairly common situation in our business, and too often, clients who would take advantage of a contractor are as well... so I thought it might warrant discussion.

Earlier this month, another reader wrote me to ask my advice on establishing a contract with a client. In his situation, in order to get a lower price on the contract, the client had implied that there would be lots of work in the future. My reader was asking the best way to create the contract so that the client would be required to use his services.

I'll start by reminding you that I'm not a lawyer so in legal matters, please remember that my advice is worth exactly what you have paid to read it. That said, I think the real issue is one of client management, not legal expertise. "Client Management" always sounds a bit condescending. Not many of my clients would think that they need or want to be "managed." So instead, let's call it "client relationship management." Now that we've agreed upon a name, what the heck is it?

In the hallowed halls of corporations throughout the land, CEOs and CFOs (and probably even UFOs) are muttering the mantra of "Customer Relationship Management". (I've taken the liberty of substituting "client" for "customer" because it seems to apply for contractors better.) CRM is the hottest corporate acronym of the last days of the Millennium. Surely, in implementation, it has many variations. But at its core is the recognition that the relationship with the customer is the most important asset that a company has. More important than the products and services they offer. Why? I'd like to tell you it's because they really care about the people with whom they come into contact. But the real answer is a lot closer to the bottom line: it costs much more to acquire a customer than it does to keep an existing customer happy. Therein lies the great value of long-term customer relationships.

We live in a world where you can generally acquire the goods and services you want -- and have several choices about it. It's a global market where if the goods aren't available down the street, they can certainly be acquired on the net. Even highly-specialized products, like a telephone small enough to fit in your shirt pocket, moves from being an "exclusive" to a commodity item sold by many companies in a matter of months. This applies to many services as well. Remember way back in '93 when there were only a few people around who could build a webpage?

If your goods or services become a "commodity", then price or speed become the deciding factors in whether you get a job. That's a terrible position to be in because all of the power lies with the client; you need them more than they need you. In this environment, you face a daunting challenge. How do you differentiate yourself from your competitors? How do you create a compelling reason for them to want you specifically? How do you maintain loyalty? Fortunately, most clients seem to want more than just commodity services. They want a relationship.

In the truly gifted who walk among us, clients recognize some particular spark of creativity that they can't get from anyone else. But thankfully for the rest of us, our clients aren't necessarily looking for creative brilliance. Instead they are looking for qualities that all of us should be capable of providing: honesty, dependability, integrity, and hard work. Interesting that these are the qualities which are key to any good relationship in any time throughout history, professional or otherwise. And while most of my competitors should be able to provide these things as well, I have found it remarkably easy to use these thing to differentiate myself -- to create a unique client relationship which instills loyalty.

Why isn't everyone trying to build these client relationships based on honesty and hard work? Maybe it's because richer-than-god people like Bill Gates and Andrew Grove and Larry Ellison keep publishing pop-business philosphy books full of anecdotal, retrospective crap. If you believe what they tell you, you've got to win at all costs by being more paranoid and cut-throat than the next guy. I'll grant you that they are more successful than I -- that is if you measure success in the bazillions of dollars. But I don't even concede that their success is due to what they profess. If you've got the luck/timing/drive to be as rich as those guys, then you don't need to be reading my advice. And for the rest of us... we better focus on CRM.

I'm sounding very old-fashioned... extolling the virtues of the golden rule as the key to business success. Ultimately, that's exactly what I'm suggesting. Without that sort of integrity -- on both sides of the table -- a long term, mutually rewarding relationship is not possible.

Building the Relationship

Every good client relationship must be built on some basic understandings or agreements between client and contractor. Start with these:

The client has value to me, in the form of opportunity to work.
I am valuable to the client, in the form of the goods & services that I can provide.
As a contractor, I have financial and professional goals which I am committed to achieving.
The client has financial and professional goals which he/she is committed to achieving.
Both contractor and client are responsible for their own business and achieving their own goals. This responsibility extends to being respectfully assertive and communicative when those interests are being negatively affected.
There is great value to both parties in maintaining a long term relationship, including: reduced marketing costs for me, reduced recruiting costs for the client, reduced risk and uncertainty for both parties, efficiencies of familiarity (learning curve about the client's business, message and processes).
Recognizing the mutual benefits of a long term relationship, there are distinct disadvantages to both parties for either party to act in a manner motivated by short-term, unilateral advantage. In other words, it hurts both of us if either of us gets selfish.

If you and your client can come to this stage of mutual respect and understanding, you will have achieved a great deal of success. You will also have set the stage for creating the appropriate contracts -- for which you may need to consult an attorney.

I hear the sceptics and lawyers snickering. "Only the contract matters. Get it in writing." I'll concede... you do need to get it in writing. But let's look at the realities of contracts. A few years ago, I got a contract to produce a $100K job for a major corporation (think cellular flip-phones). Everything was signed and committed to a contract. Two weeks into the schedule, the client calls and tells me that their budgets have been slashed and we only have $45K for the job. Now what? I have the contract saying that they're going to pay me $100K, but there's no way in the world I'm going to try to enforce it. It just wouldn't be reasonable to jeopardize my relationship with this client to bring legal action. On the other hand, it would have been a much different story if we were nearly finished with the job. But, thanks to the relationship I had cultivated with my client, I know they would have found a way to live up to the contract in that situation.

My conclusion is that while the contract can protect you, in many cases you won't actually want to use it as a "stick" to enforce the terms. When things aren't going according to plan, the first course of action needs to be assertive discussion. This is when CRM is essential. You need to have a frank discussion with your client, recognizing the client's needs while asserting your own requirements. Use the contract and all other documentation such as a project scope document, the client's request for proposal (RFP) and any production schedules or approval stages which have been signed by the client. But use these documents as tools for coming to a constructive resolution.

Avoid any threat of legal action unless you are absolutely ready to permanently dissolve any ongoing relationship with that client. As soon as you escalate to legal enforcement of the contract -- or even the threat -- you've failed at CRM. And that failure resounds throughout the business community. Think about how other potential clients will regard you. How many people want to hire a contractor with a reputation for suing clients? Not many. Whether you're right or wrong (and of course, you're always right), you acquire a reputation as a contentious (and even litigious) contractor. That's why CRM is so important.

And conversely, you will find that when you succeed at CRM, that success will resound. Clients will recommend you, both inside and outside their organizations. Pretty soon, you'll have earned a reputation for honesty, integrity, and good business sense -- and I'll gladly compare that to Bill Gate's rep any day!

Book Recommendation

A decent place to start on contracts is a book called Multimedia Law and Business Handbook, by J. Dianne Brinson and Mark F. Radcliffe, ISBN 0-9639173-2-3, published by Ladera Press.

Patrick McClellan is Director Online's co-founder. Pat is Vice President, Managing Director for Jack Morton Worldwide, a global experiential marketing company. He is responsible for the San Francisco office, which helps major technology clients to develop marketing communications programs to reach enterprise and consumer audiences.