Don't We All Have a Customer We'd Like to Fire?
You know the one: the customer who complains a lot, thinks your price is too high, pays late, wants you to go the extra mile for free, and has never referred you new business. Customers like this are a business reality. Fortunately they are a minority, but they’re a drag on your business nevertheless.
Pareto’s law tells us that 20% of our customers account for roughly 80% of our revenue and profits. The flip side of Pareto’s law is that 20% of our customers cause 80% of our costs – and those costs are not necessarily monetary. They can be emotional and reputational costs that suck up valuable time we’d rather be spending growing and perfecting our businesses.
But ending a business relationship is not always easy, even if there’s no contractual impediment to doing so. When all the signs say “Run!” it is hard to turn down revenue, or deal with the prospect of a jilted customer going off on your business on social media. So, many of us put up with bad customers until they decide to move on.
But this strategy is counterproductive. One, customers like this aren’t profitable for your business, especially if you factor in the opportunity cost of trying to satisfy them. Two, they will likely never be satisfied with what you do for them in spite of your best efforts. Three, they’re already talking poorly about your business to others, thereby harming your reputation and possibly costing you referrals.
What can you do to rid your business of bad customers? Here are a few strategies:
- Practice zero-based thinking (ZBT). Apply the following question to your entire customer base: “Knowing what I now know, would I have done business with this customer?” Do this at least twice a year in businesses that offer non-contractual service relationships, or do it as part of your contract renewal process. If the answer is “no”, you’ve got a candidate for separation.
- Examine the bottom 10% of your customers by revenue. They’re in the bottom 10% because they can’t, or won’t, increase their spend with you. If your business model was a good fit for them, and they saw the value your business offers, they’d spend more (like your other customers do). If they’re in the bottom 10% and they complain, pay late, etc., these are good candidates for separation.
When you decide it’s time to end a customer relationship, do so professionally and considerately:
- Start a conversation rather than send a notification. Your customer may not understand the impact her demands have had on your business. She may be willing to accept a different status quo, or pay a higher price for service. A courtesy call like this, if handled well, will leave the customer feeling whole and less likely to trash you online.
- Make it clear it’s about “fit”. Some customers simply aren’t a good fit for your business model and they would honestly be happier with someone else. Take ownership: “We’ve looked at your account and the needs you have, and we realize that we’re not a good fit for you”, even if their needs were unreasonable. This costs you nothing and allows you to end the relationship amicably.
- Offer to refer them to someone whom you trust. This referral relationship agreement should be in place, of course, before you refer your customers to someone. Explain why you think the other company will be a better fit, and follow up after a week or two to make sure that things worked out. Act as if you have the customer's best interests in mind.
- Notification should precede the service end date by at least 30 days (unless governed by contractual terms). Give your customer the time he needs to locate and switch to another provider. And that time may vary depending upon industry and other factors such as the availability of alternative suppliers.
Of course, you may part ways with a customer for very specific reasons, e.g., continued non-payment, or a violation of the terms of your service agreement. In this case the specific reasons should be conveyed and documented to the customer with the notification of service end date.
One last piece of advice. It’s easier to have never begun a relationship than it is to end one. So, take proactive steps to minimize the disruption bad customers can cause:
- Use your sales process to identify undesirable customers. Use your sales process to gather data about the client, such as their experience with other vendors. If they’re looking for a replacement, why? How long did the last relationship last? Adopt the mentality that you’re interviewing them to make sure it’s a good fit for everyone. Don’t let them in the door unless you’re convinced it’s going to be a good relationship.
- Set clear expectations and manage to them. Your service agreement should make clear your obligations, as well as those of your customer. Moreover, it should specify the boundaries of your service so that have some defense against scope creep and significant changes. Finding the balance between superb service and profitability can sometimes be tricky, but you’d at least like to have the ability to charge for additional services and support, even if you later decide to waive the fee in the interest of customer loyalty.
As a business owner, your goal is to continually improve the caliber of clients you serve while establishing long-term, productive relationships with them. Parting ways with customers isn’t easy. But if done well it will increase profitability and morale without making the customer angry. Don’t be afraid to end the relationship with customers you merely tolerate so that you can replace them with customers you love.