Fire Your Bad Customers: Why, When, & How
Not every customer is a good cutomer. “What are you thinking!”, I can hear you say. But I say that a drowning man will drown you too!
Want to burn out quickly? Keep your bad customers. (They wear you out and take more time and energy to service.)
Want to go broke? Keep your bad customers. (They cost you more.)
Ok, let’s face it… when you first start your business you want, need, and sometimes have to take almost all of the business that you can get. You can’t afford not to. The bills have to be paid, right? But even beginners have their limits. (No, you can’t pay me 90 days late!)
Then, after you’ve been in business for awhile you may find yourself not looking so forward to those long days like you used to. Perhaps it’s time to start asking yourself some serious questions about your customers. There are several ways to approach this but let’s take a look at just one way of doing this.
Sorting customers by profitablity
Let’s say that you have a really small business and you’ve gotten really busy! Hurrah for you! But uh oh, you can’t seem to get to everyone. You have some options here.
- Increase your business size (hire more people or start outsourcing some of the work);
- Keep doing business the same way and expect that some people are not going to get quality work/service or go elsewhere because you took too long
- Raise your prices slightly and let the market (your customers) decide who will stay and who will go (you will lose a few)
- Choose who you don’t want to service any more by how much money they bring into your company.
If you are going to decide by profitability, you can choose by total sales volume or total net profit per customer. The choice that you make will depend on what kind of business model you have. Are their material/supply costs involved with certain types of jobs? Which of these kinds of jobs actually make the company more money after expenses? Are you a service business with no materials involved?
In my own really small business, I did this when I returned after maternity leave. I couldn’t possibly work a full time schedule and didn’t want to. I would be working part-time. I knew that I couldn’t service all of the clients that I previously was doing business with so I sat down and made a customer chart.
I sat down with my books from the past couple of years and listed every single recurring account. (New accounts were listed if they had shown / talked about the potential for future business.) Then I listed exactly how much each account had brought in by total sales dollars. For instance, here is a totally fictitious customer list including each customer’s total sales volume for a year:
Jones $19,000
Murray $13,000
Hill $13,000 (good referrals for new business)
Lief $13,000
Beach $11,000 (sometimes late)
Ray $9,000
Gordon $4,500 (takes lots of time to service!!! :-( )
Burton $3,000 (has given the most referrals!)
Lombart $3,000
Gull $2,000 (real pain to service)
Stance $2,000 (always late)
I made customer lists by year (2004, 2005, 2006, 2007, etc.) and then also a cumulative master list for all years combined that I was checking on. This helped me with a couple of things. I could see which customers were spending more with me over the past several years and then also who’s business had been dropping. I tried to make a note of any conversations that I had with those customers to figure out if they were just having temporary financial trouble. The last step is to put all customers, in order, by what they bring in.
Which customers had to go?
Reasons to get rid of a customer? Oh, let me list a few: they complain constantly about your service/product (yet still return), hard to satisfy, abusive to you or your staff, always coming to you at the last minute wanting a super rush job (when they could have reasonably given you more time), they expect extra time on their services (unpaid of course), they are driving you nuts, make more returns/changes than 90% of your other customers, they cause you to toss and turn at night, and when they don’t just need handholding - they have to have their own nanny!
So, how do you get started? First of all, take a good look at your bottom line. Can you truly afford to get rid of anyone? Will only getting rid of the worst-of-the-worst make your work days 100% better? If so, thin your customers lightly and be done with it. If not, keep reading.
The worst customer, by my standards, was”Gordon”. It had literally gotten to the point where I found myself sighing to hear their call in the voicemail. They were out and I’d be happier for it. These are what I call your “burnout customers”. Why in the world would I want to keep an account that would eventually drive me out of business just so I don’t have to service these clients?!! I wouldn’t. And you don’t need to either. If you can’t get rid of these kinds of folks, you (and your business) will be sunk! You have to do it. This call is made purely on the basis of “self-preservation”!
The customers that constantly were having trouble with being late (the worst offenders) also had to go, this applied to those late physically and those late with payments. My new schedule would not allow for lots of extra time. There would be no “time cushion” available to these folks and so they would probably not be happy with the new arrangement as that is their nature. I also would not have time to chase down money. People know what they owe. It’s not “our” job to chase them. I put up a professional and kindly worded notice in several places so that all customers would see it, that way no one was caught off guard (or with an excuse saying they didn’t know!)
Which customers get to stay?
The best customers were referers. They had told others about my business and were happy to help me out by doing so. They increased the size of my business at no additional cost to me. They all got to stay but one.
I kept customers that were truly a pleasure to work with. (Which covers most customers.) In our example, “Lombart” brings in only $3,000 but is easy to work with, always knows what they want, pays quickly, and is always very pleasant. Definitely a keeper.
I took a good look at any new or recent business and really considered their potential to my future bottom line. Many new accounts got to stay with only one or two newbies not making the cut.
I also took a good look at my own business to see what areas I had been weak in. Ask yourself if and what customers ever complain about (if even by body language or tone of voice only!) Make sure that you take this time as an opportunity to get your own ducks in a row, so to speak, so that you are ready for the next round of business that you are about to welcome in.
Don’t miss the next installment!
The next installment of this mini-series will cover the how-to part of getting rid of those select bad customers so stay tuned! What kind of customers have YOU had to fire in your own business? You can email me (adonna at momville dot com) with your own personal experiences to be considered for inclusion in the next article. Until then, happy profits to you and yours!
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Aditional Links Of Interest:
Sprint Nextel’s letter firing some customers in 2007
Google “CRM software” (customer relationship management) for helpful software to track your best and worst customers.
