Entertaining Clients? Save Your Money

NEW YORK (TheStreet) -- As the holidays approach, many companies are asking the question: How much should I spend to keep my best clients happy? Although the occasional small gift is expected, the down economy and increased corporate scrutiny have put a damper on how much companies give each year. If you're tempted to give lavish vacations or tickets to the Super Bowl, experts warn that going "all out" will send the wrong message, and might actually cost you some loyal clients -- or trusted employees.

"In the 1980s, you couldn't spend enough money," says Bruce Bachenheimer, director of the Entrepreneurship Lab at Pace University in New York. "But today clients are saying, 'Forget the hunting trip, forget the lavish treatment -- just give me a better price."

Client spending -- and the perception of what "acceptable" client spending is -- has evolved over the past decade, Bachenheimer says. The dot-com crash in 2000 inspired companies to re-examine their investment priorities, and after 9/11 companies saw more urgency in preparing for the inevitable "rainy day." The "final straw" occurred most recently in 2008, when businesses were forced to pare down to their most essential operating costs -- and extravagant client treatment just didn't make the cut.

"Nowadays there's just a level of uncomfortability for the giver and the receiver," Bachenheimer says. "If you're rolling out the red carpet for a customer, they're going to assume you have incredibly high margins to do all that spending. They're going to think, 'Oh, he's overcharging everyone -- including me -- in order to afford all this."

Some of them may even start to wonder, "Did I sign this contract because I was effectively bribed?" Bachenheimer says.

Unfortunately, your clients aren't the only ones who may start to question your methods, says Meghan Daniels, senior director of advisory services at SAI Global. Employees will start to take note and wonder why -- if the company is doing so well -- they aren't getting raises or bonuses.

"Especially at a smaller company, everyone knows what's happening. If you buy a client a lavish vacation, you run the risk of angering your team," Daniels says. "Employees really want to be proud of their company. Everyone has to be committed ethically."

Sometimes, whether or not your customer gifts raise eyebrows depends on whether your client's company has a committed corporate compliance program, Daniels says. Today, many companies have limits in place for what their employees can get, and the limit is usually around $100. Before giving a client anything, it's important to understand their corporate policy.