Know When to Fire a Customer

I recently met with a client named Jim, 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.

A majority of the sales growth came from a new company that had become his largest and “best” customer. This company was difficult to work with, but Jim was glad to have the additional business.

We decided to have everyone in Jim’s 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 unreliable vendor.

Reasons to Fire a Customer

How do you determine when it’s time to fire a 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: 1) Everything is an emergency but they never want to pay for changes or rush delivery; 2) they take the position that every problem is your fault; 3) they argue about all of your invoices.
  • Do they 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. Don’t get me wrong – this isn’t a step to be taken lightly. Before firing a customer:

  1. Try everything reasonably possible to make the relationship work. Some customers might turn out to be fine once initial difficulties are smoothed out.
  1. 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?
  1. Be prepared for the consequences of letting the customer go. If the customer constitutes a large percentage of your sales or has the ability to damage your business (such as a significant community leader in a small town), or if other customers might leave as a result, develop a plan to minimize the risk before severing the relationship.
  1. 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, my 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 and, 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 Jim saw the results, he wished he had let his problem customer go months earlier.

Firing a customer is seldom an easy decision to make, but it might be the best thing you can do for your company.

Laddie Blaskowski is President of BusinessTruths Consulting, Inc. and co-author of the book titled The Step Dynamic: A Powerful Strategy for Successfully Growing Your Business.

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