Firing a customer. It sounds like an oxymoron, doesn’t it? But contrary to popular belief, the customer is not always right and not all customers are good.
In fact, you may very well have a customer on your books right now that’s more of a money drain than a moneymaker.
Yet, many still believe the primary method to achieving greater profits is to gain more customers.
This post will divulge why that belief isn’t true, how to know when a customer has become a bad fit for you business, and what to do about it.
How to Justify Firing a Customer
Don’t be fooled. We’re not advocating you go out actively searching for as many customers to fire as possible. It’s always in your best interest to try and make a relationship work from the start (and as you gain experience, you’ll become good at spotting the warning signs of a troublesome customer that’s best to avoid).
But there are circumstances where it proves impossible for both parties to mutually benefit from a business relationship. In these instances, it’s best to sever ties.
Here are reasons you may consider firing a customer:
• Not living up to their end of the bargain.
Does your customer constantly reschedule or cancel meetings at the last minute? Are they always late on deadlines, causing you to chase them? If so, they’re occupying valuable time you could be spending with other customers.
• Consuming too much time.
Does your estimating department spend more time quoting and re-quoting jobs for a customer than your production team spends producing them? Some customers with ‘penny-pinching’ reputations are not worth the hassle.
• Causing excessive or unnecessary rework.
You’re not perfect and there will certainly be times a job isn’t done right the first time. Occasional rework is normal. However, when a customer has unrealistically high expectations and is constantly asking for a job to be redone, this creates a serious drain on resources (staff time, equipment usage and materials) and eats into your bottom line.
• Not paying on time (or at all).
Nobody should have to deal with a customer who’s consistently late in payment or forces you to engage a collections agency. If this is happening, it’s time to cut ties and move on.
Cost of a Bad Customer
Even if a customer isn’t directly eating into your profits (through rework or failure to pay), there are indirect considerations that may be harming your company.
• Opportunity cost.
Could the time your sales team spends with a troublesome customer be put to better use finding new customers or working with more profitable customers?
• Employee morale.
Some of your employees may become so frustrated by a bad customer that it harms the work environment. Negative repercussions may include loss of motivation, underperformance or resignation.
Considerations Before Firing a Customer
Before letting a customer go, you’ll want to make sure you are adequately prepared to replace their business. It’s a good idea to do some forecasting. Look at your existing customer base and sales projections and ask yourself these three questions:
1) Are you expecting any additional upcoming work from some of your existing customers?
2) Are some of your smaller customers growing with the potential to turn into a bigger and more profitable account?
3) Are you on the verge of acquiring any new accounts in the near-term?
If you answered ‘yes’ to one or more of the questions above, you may be well positioned to let that troublesome customer go.
However, if you are hesitant to move on from your customer, be mindful that alternative options are available to you.
We’ll detail in our next post.
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