What To Do When A Client Files Suit Against Your Agency

By Jason Swenk on August 10, 2016

In this episode, we’ll cover:

  • The warning signs of a project that’s going south.
  • Why it’s so important to have documented processes for your agency.
  • 3 ways to handle a client lawsuit.

This week’s podcast is a little bit of a different format. Instead of interviewing a guest who shares great strategies to help you grow your agency, you get to listen in on a coaching call with a client who is facing a client lawsuit. I recorded the call with his permission and we chat about how to handle it without wasting outrageous amounts of time, money and emotion.

Before we dive any further, you should know a couple things:

  1. This is not legal advice. I’m not an attorney 🙂
  2. In the interest of privacy, names have been changed/omitted.

The Backstory

So today, I’m talking to Jake who owns a small digital agency in the midwest. They work with small and midsize businesses and have been in business for nearly a decade.

Jake’s agency took on a client who was retired from a successful military career. She was starting a side project which included an educational website. Jake’s agency quoted the project at $15,000 with payment terms as: $5,000 upfront, $5,000 at concept approval and $5,000 upon completion.

Why You Should Never Ignore the Warning Signs

Before they knew it Jake’s team was two-thirds into the project, victims of scope creep, way over on hours and project scope had changed many times… Jake admits all the warning signs were there and they ignored them.

He says in hindsight they should have fired the client and walked away. Instead, they kept working in order to recoup their loss and get the last $5,000 installment.

Finally, the project was complete and delivered. They didn’t hear from the client for about a month until she contacted them to help with a server upgrade. Which they did. For free. Again. :/

3 Words to Dread: “You’ve Been Served”

Another month after final contact with this client, Jake says it was business as usual at the agency until a gentleman arrived at the office, asked to speak with the owner, and officially served him with a lawsuit. It was exactly like the movies.

The client is suing Jake’s agency for $5,000… Which is baffling because it’s only for part of the project cost, not the full amount. This has never happened to Jake in almost 10 years in business.

In 12 years running my agency, I went through this process 3 or 4 times. It’s scary at first. The best way to handle it is professionally. Keeping your cool and an open mind.

Why Processes Outperform Talent Every Time

Without knowing the exact reason for the suit, the first thing to look at is Jake’s agency’s process. Could they be at fault or negligent in delivering what was expected, promised and paid for? He says no.

Jake had purchased my Agency Playbook and has access to all my agency documents. He assures me that his team has documentation of the approved proposal, launch order forms, $0 change orders and project approval. He has full confidence that his team followed their processes and has a paper trail to prove it. So what piece of the story are we missing?

3 Ways to Handle a Client Lawsuit

  1. Keep attorneys out of it (if possible). In Jake’s case, his agency was being sued for $5,000. Attorney fees would be least that much. This is a small claim should be easily resolved without racking up legal fees.
  2. Make a personal phone call. Even though you’re shocked and insulted call and ask for a phone or in-person meeting to discuss her side of the story. There must be a reason she resorted to legal action, so give her a chance to explain.
  3. Diffuse the situation. You definitely want to defend your agency and your team, but just ask for her story and then listen without interrupting. Most people want to be heard so let her rant and vent and just hear her out. Brace yourself, because this could be the hardest part.

Moving Past A Negative Experience

Every experience has the potential to be something you learn and grow from… Even something like this. It’s important to me that Jake not only get through this but also walked away learning how to avoid it in the future.

Obviously, this agency’s project delivery process is completely buttoned up. But, I always say there is no bad agency client – only a bad prospect or bad process. So somehow this really bad prospect slipped in and became a difficult client – which is the result of a flawed screening process.

What I wanted to make sure Jake is able to avoid any future issues, so we talked about what he could do differently next time. Here’s my advice to him moving forward:

  • Trust your gut and don’t ignore the warning signs. If a project or client is getting out of hand, fire them. Walk away and don’t look back.
  • Never, never keep working on a project just because you’re too far in. You might want to recoup what you’ve already invested but you’ll lose so much more. You’ll never get the time back and it’ll cost you even more in lost opportunities.

Jake ended our call with the intention of calling this former client to see if they could meet to go over her complaint.

Justice Is Served

Update since the interview: As it turned out, Jake was forced to meet his former client in court. She was suing the agency on claims that she lost business while the site was being built.

The $5,000 she was suing for included the cost of business trips she couldn’t take because the site wasn’t finished, as well as her phone bill for the business line that was tied to the website.

Jake and his team went to court in with a 5” binder of every email, signed document and a timeline of the project. When the judge asked questions, they had answers with documentation.

In the end, Jake says it was a really good experience and he feels a new sense of confidence in their work and their processes.

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