The hidden cost of bad clients: how to segment for profit, not just volume
Some of your highest-volume clients are destroying your profitability. You know the ones I’m talking about.
The client who generates massive billings but demands rock-bottom fees. The one who fills your pipeline with roles but never converts. The relationship that looks fantastic on paper but leaves your consultants burnt out and your margins razor-thin.
In recruitment, not all revenue is created equal. And yet most businesses still measure client success through volume of jobs when they should consider other metrics: the value of good relationships, quick process turnarounds, limited candidate drop-outs and sustainable recurring revenue.
Remember, client segmentation isn't just about size or spend. It's about understanding which relationships drive sustainable growth.
Go where the money is
The reality is, these ‘bad clients’ are not only making your team miserable, they’re costing you money. When you factor in the consultant time, the management overhead, the opportunity cost of not working on better clients, suddenly that £500k billing doesn't look quite so impressive.
I recently worked with a recruitment business where their second-largest client was actually a drain on their resources. The fee rates were so compressed and the service demands so high that when we properly costed the relationship, they were operating at a loss - for two whole years.
Everyone in recruitment is familiar with the Pareto Principle or 80/20 rule: it’s the idea that a large percentage of revenue comes from a small percentage of customers. I’d suggest that you pair it with my own personal principle: ‘Go where the money is’. Look at the clients that actually make you money, and target more like them.
Most recruitment agencies can tell me who their top billers, and their top clients are. Very few can tell me which industry sector is most valuable to them. I recently worked with a manufacturing recruiter who realised that almost 80% of their revenue came from the Food & Beverage industry. Armed with this invaluable insight, they developed a very successful content-based digital marketing strategy that was laser focused on other prospective clients in that sector.
Move beyond the obvious metrics
In recruitment, we segment clients using fairly basic criteria: annual billings, number of roles, industry sector. But these metrics only tell part of the story.
Dig deeper. Look at fee margins, payment terms, consultant satisfaction scores, and something I like to call "Relationship Sustainability”. Will this client still be with you in three years? (Be honest).
One of my clients has also started tracking their clients by an altogether more human metric, ‘The Consultant Happiness Index’. The correlation with profitability was staggering. Their most profitable relationships weren't necessarily their biggest, but they were consistently the ones where consultants felt valued. The consultants invested more time in actually speaking to those clients and in turn those clients received a better customer experience.
And it was no coincidence that those same consultants were the first to hear when new vacancies arose.
The clients you want (and those ‘two CV jobs’)
For effective client segmentation in recruitment, you need to plot two key dimensions; profitability and strategic value. Here’s how clients tend to measure up:
The Crown Jewels: These are your best clients who sit in the sweet spot of high margins, reasonable demands and growth potential. They make your consultants actually want to pick up the phone. They deserve white-glove treatment and dedicated resource allocation.
The Growth Prospects:. These clients have potential but need development. Maybe they're currently low-volume but in expanding sectors, or they're new relationships that could become something special with a little more time and energy.
The Cash Cows: This is a slightly trickier category. These are the high-volume clients with compressed margins. They're not necessarily bad, they just need efficient management. Think systemised processes, junior consultants, and clear boundaries on service levels.
I know there is room for nuance here, and while I understand that it might be reputationally valuable to stay on a Preferred Supplier List (PSL), there are some clever methods for dealing with clients of this type. One of my own clients adopted a strategy for their ‘cash cow’ client where for every job, they sent two CVs. If there was traction, great. If not, at least the consultant hadn’t wasted much time. These became known as ‘Two CV Jobs’.
From a management perspective, this approach generated some interesting conversations. It’s reasonable to expect that higher quality jobs should also result in a higher fill rate. If 8 out of 10 vacancies in a consultant’s pipeline were ‘Two CV Jobs’, then they were targeting the wrong clients, working the wrong jobs or categorising their jobs incorrectly.
The Energy Zappers: Last, and maybe also least, these are the clients who consume disproportionate resources for limited return. These relationships need serious reevaluation. Sometimes they can be fixed, but often they require a graceful exit.
Breaking up is hard to do
The hardest part isn't identifying which clients fall into which category. It's acting on that information.
I worked with one regional recruitment business that made the bold decision to exit their most demanding client, who represented a decent slice of their revenue. Eighteen months later, they'd recovered that revenue and increased overall profitability by 40%. The consultants were happier, the service quality improved, and they attracted better clients as a result.
This may not be the right move for you, but look at the evidence in front of you, it may be something to consider.
You’ve got to have good data
Effective client segmentation requires decent data. Financial metrics are a given but there are other qualitative indicators that really matter.
Start tracking consultant feedback systematically. Measure process turnaround times, conversion rates by client, the number of candidate dropouts post placement and client payment behaviour. Look at the tenure of client relationships. High turnover is often a red flag and lapsed clients may mean that another recruiter is taking your slice of the pie.
And don't forget about future potential! A startup client might look small today, but if they're in a growing sector with ambitious plans, they could soon be the star of your show.
Segmentation isn’t something you do just once
The biggest mistake I see is recruiters treating client segmentation as a one-off exercise. Market conditions change, clients evolve, and your business grows. What worked last year might not work today. It is also really important to look across verticals, service lines and geographies. For example, I often see clients who only work with a consultant on the Finance team and then give all their Technology roles to another agency. There are lots of opportunities for cross-selling that are slipping under the radar.
The best recruitment businesses embed segmentation into their regular rhythm. Monthly reviews, quarterly strategic sessions, annual deep-dives. They train their consultants to spot the warning signs of deteriorating relationships and empower them to escalate concerns.
Moving forward with intention
This is not about becoming ruthlessly commercial at the expense of relationships. It's about being more intentional with your time, energy, and resources. Recognise that sustainable growth comes from quality, not just quantity.
Your consultants will thank you when you focus on the clients that value their expertise. Your bottom line will improve as you eliminate the hidden costs of toxic relationships. And most importantly, you'll probably end up providing better service to the clients who matter most.
Trust me, a long client list will not be the secret to great success in the coming years. It’s all about figuring out which relationships truly drive value and having the courage to focus on those that matter most.
