Fire your Customer?
The other day I ran into a friend of mine in the bank. For the sake of this column, let’s call him John. John owns a very nice small business, and shares my philosophy about giving great customer service. We were talking and I asked him how business was going. He replied as he always does, with a positive attitude. No matter if business is great or if business could use a little boost, John has a great attitude. As we talked, I was reminded of a story he told me a couple years ago. A story about a tweak he made to his business model.
John thought about and worked on his new business model for a long time. By the time he was ready to implement it, he had considered every detail. One of the details was causing him much distress. He had several very good, very profitable clients, who just didn’t fit in with the new business model. The clients always purchased John’s product in above average quantities, paid on time, and on paper would be considered clients that he should want to duplicate. However in real life these same clients were really not worth the effort.
They had habits and behavior that not only irritated John, but also other clients. So much so that some of the other clients stopped spending their money with John. New clients would be turned off and not want to come back. So John faced one of the toughest questions that a business owner can face. Does he “fire” good clients and forego regular profits in an effort to possibly gain even more profits in the future? What were the costs to keep that regular income flowing? What were the pros and cons of such a move? What a tough call!
As small business owners and managers, occasionally we have to make similar decisions like the one John faced. The clients were probably model clients when they first came on board. But like John’s clients, sometimes they get a little too comfortable. Sometimes they take our great customer service for granted and start not paying on a timely basis. Or they start treating your employees inappropriately or demand special treatment. How do you make that decision, and if you decide to “fire a client” how do you do that?
I wish I could tell you that there was a simple formula that once you plugged in the variables, gave you a clear answer. There isn’t one that I know about. But there are questions to ask that can guide you toward an answer. 1. How long before you can replace that client with one who is equally profitable? 2. What are the soft costs of the firing? Will it irreparably damage your reputation? 3. What are the benefits, happier employees? Less stress? Quantify the answers to these questions the best that you can, as it will make the decision easier to see.
Another question often asked is should you fire the least profitable of your clients and concentrate on the most profitable? While there are some management consultants that say you should do exactly that, I am not recommending it today. I am recommending that you look at your problem clients and evaluate their true value.
John did end up firing his problem clients. He told them in a direct manner and asked them to take their business elsewhere. At first the clients objected, but ultimately complied. John has never regretted that decision, sales improved and John has much less stress.