The customer is not always right! A bad customer can harm your business in so many ways, but how do you decide when it's time to fire them? This article describes:
- how to recognise a bad customer
- reasons to fire a customer
- what to do before firing a customer.
Your best customer can sometimes be your worst customer
We recently met with a client who was concerned that his profits were stagnant despite increased sales. Although opportunities for other sales existed, his people seemed "maxed out" and he was unclear about how to take on more work.
Most of the sales growth was coming from a new company that had become his largest and "best" customer. This company was difficult to work with, but he was glad to have the additional business.
We decided to have everyone in his company track their time and keep notes about their various customers. It quickly became evident that their "best" customer was also their worst customer, providing 15% of total sales but taking up 30% of their time. This customer complained the most, questioned every invoice and made unreasonable requests.
The customer is not always right. A bad customer can cause great harm to your company by undermining efficiency and morale, and cost more than the revenue it generates. In those cases, the wisest choice is to let them go. It makes no more sense to hold on to a bad customer than it does to retain an unreliable employee or vendor.
Reasons to fire a customer
How do you determine when it's time to fire a bad customer? Ask yourself:
- Does the customer take up so much of your time that it no
longer provides a profit or your margins are unsatisfactory?
- Does the customer upset your entire staff? People who are rude,
nasty, lewd or mean don't have a right to behave that way to
your employees just because they are paying you money.
- Does the customer disrupt operations on a regular basis?
Examples:
-
- Everything is an emergency, but they never want to pay for changes or a rush delivery.
- They take the position that every problem is your fault.
- They argue about all of your invoices.
- Does the customer pay their bills on time? Remember, you
haven't made the money until you've collected it.
- Does the customer fit into your current strategy? You might
have simply outgrown them, even if they haven't done anything
wrong.
- Is the customer dishonest? Get rid of this one immediately!
Before firing a customer
Firing a customer may seem like a radical idea, particularly in light of today's competitive marketplace. Before firing a customer:
- Try everything reasonably possible to make the relationship
work. Some customers might turn out to be fine once initial
difficulties are smoothed out.
- Take a hard look at your own company to see if it's the
problem. Are you lacking customer service skills? Is an employee
causing customer problems? Do you have an internal process or
culture problem?
- Be prepared for the consequences of letting the bad customer
go. Do they constitute a large percentage of your sales? Is the bad
customer someone who has the ability to damage your business (for
instance, a significant community leader in a small town)? Might
other customers leave as a result? In such cases, develop a plan to
minimise the risk before severing the relationship with the bad
customer.
- Ask yourself: "Would my company be better off if this customer no longer did business with us?" If the answer is yes, fire them.
After a few months of due diligence, our client decided to fire his problem customer. With 30% more time available, the firm kicked up its sales efforts with both current customers and new prospects. Within four months, the 15% in sales was replaced. After three more months, sales were up another 10%. Profits started to soar and employees were happier.
Once he saw the results, our client wished he had let his problem customer go months earlier.
Firing a customer – however bad – is seldom an easy decision to make, but it might be the best thing you can do for your company.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
