Firing a Customer

There are customers who are so bad, you'll wish the competition had them. So go ahead and fire them! But do it the right way.

by Brock Henderson Principal, Henderson & Associates [May 5, 2008]

It's true! There are times when you need to and should fire a customer. While the natural inclination is to hold on to every customer for dear life, reality is a very different matter; and frankly there are at least two times when you need to graciously decline to further service a client.

1. When looking at your overall profitability, you need to set a minimum standard for revenue from a customer. That standard can be a dollar amount or it can be a profit percentage, but you must have a yardstick by which you measure the profitability of each client. Any client not meeting the minimum profit standard should either have their rate increased, or be let go.

Note: This does not apply to institutions you are intentionally discounting or donating your services to because of its prestige in the community, and you want to be associated with that organization and the residual prestige. This would typically be the Not For Profit customers you are providing services for.

Every one else should be held against your profitability yardstick.

Often, you end up with these less-than-profitable customers because someone was trying to close a sale and started giving away the farm just to make the deal happen. End result, you make pennies when you should be making dollars. (You don't see the major Telcos discounting their services to the bone just to get a customer, so why should you?)

Your services are valuable products that deserve appropriate pricing. While there are times to give discounts, they should be rare occurrences with only minimum impact on profit. If you don't think enough of your services to stand fast on your pricing, then the customer won't think enough of your services to pay what you disserve.

All too often I see businesses selling their goods and services with a profit of literally just a few cents—and not just in the ISP industry. Selling a product for a 50 cent profit isn't good business when there are people and businesses out there willing to pay several times that. Unless your target market is the bargain shopper, you shouldn't be selling your business short of its real cash potential.

If a client isn't contributing a reasonable amount to your bottom line, then I would argue that they aren't paying enough to be worth the effort. If a prospect starts saying, "Company X is offering the exact same service for $1 less", then you need to respond with an explanation as to why you are worth more than Company X, and not fall into the trap of a bidding war.

2. You've heard that 80 percent of your business comes from 20 percent of your customers; well, there is another way of looking at the 80/20 rule. 80 percent of your headaches, frustrations, and problems come from 20 percent of your customers!

How much more efficient and effective would your business be if you got rid of those "problem" customers? Is the profit they bring to the bottom line really worth all the grief they generate with their interruptions, complaints, foul language, and other annoyances? Wouldn't it be better to analyze the 80 percent that are good customers, find common trends, and duplicate them rather than suffer the indignation of the problem customer?

In reality, you may not have to fire these customers. You might be able to turn them into reasonable and nice customers that you enjoy dealing with. Start by sending them a letter along the lines of:

Dear Customer,

The last several times you have contacted us you have been rude, used profanity, and in general been totally unprofessional, while we have tried to be soft-spoken, attentive, and genuinely concerned with resolving your issues.

There is no excuse for behaving in such an unprofessional and rude fashion, and we are tired of it. Either conduct your business with us in a completely calm and professional manner or find someone who will tolerate your profanity.

Sincerely, Your ISP

Some that get this letter will throw a hissy fit and go elsewhere, and to that I say good riddance; but some will straighten up and become polite, enjoyable customers which is what you want. There is simply no reason you or your staff should have to tolerate rude customers, and when you get rid of the problems two things will happen: moral will go up, and productivity will go up.

You may have lost a little revenue, but you have gained more productivity that results in more profitability and happier employees; you won't have really "lost" anything except the desire to have a drink in the middle of the afternoon.

Get rid of marginally profitable clients and the clients that are a constant pain in the derriere, and focus on obtaining clients that are willing to pay a fair price for your services and are willing to treat you and your staff with the professional respect you deserve.

—End