Get’EmOutaHere!

A couple months ago, I talked about the cost of losing a good customer.  The flip side of this is the benefit of firing a bad customer.

 “The customer is always right” is a phrase most of us imbibed with our mother’s milk.  But it is patently not true.  The phrase should be “When the customer is wrong, put up with it until they become more trouble than they are worth.” 

So how do you determine that tipping point?  You can judge it subjectively, but it is easier and more profitable to periodically assess the following in some sort of quantitative manner:

1) What amount of sales and service time does the customer require?  You should have a certain

ratio of sales and service to revenue priced into your business model. (If not, this is a problem you need to address.)   

You need to periodically rate each customer via a scorecard so you know when a customer is exceeding that ratio.  You can put up with an imbalance in the short term, or as an investment in a company which offers significantly higher future revenues.  But those should be conscious decisions.

2) What kind of pricing satisfies the customer?  There is a big difference between someone paying list, and someone demanding significant discounting. The latter doesn’t just hurt that customer’s contribution to your bottom line—it also contributes to erosion in your overall pricing. 

3) How do the bad customers’ demands affect employee morale?  Having to smile at, and agree with, flaming jerks puts a strain on anyone’s day.  Over time, it makes your company a less desirable place to work!

4) How does the customer affect your brand?  Do they provide good word of mouth, or are they bad-mouthing you to other customers and potential prospects?

Finally, once you’ve identified a bad customer, how do you deal with them?  The first step is to try and fix the relationship by aligning expectations (which roughly translates to “Things are going to change.  If you don’t want to change, then we’re going to part ways.”  If that works, great.  But most of the time, the bad customer will quit you.  That’s GOOD!  It will improve your bottom line and cheer up your employees.  Just make sure that (1) you collect your money before they leave, and that (2) you are very professional about it, to minimize the inevitable complaining about how badly they were treated by your company.  Oh, and one other benefit—the bad customer will move to one of your competitors, and cause them the same problems they were causing you.  And that’s a win-win 

If you’d like to talk about cleaning up your customer list, give me a call!