Some customers are simply not worth having – they cost you more than the revenue they bring in. They consume a disproportionate share of time and money, and create stress by paying late. They disrespect your people, complain often, and expect the earth, yesterday, and all at a rock-bottom price.

2016_07_ALL - How to fire a bad customer

But enough is enough. It’s time they moved on. They are just not right for you.

A proven method for finding your best customers…and who to fire

We’ve all experienced the frustration, expense and waste of resources that low-paying, high-maintenance customers create. Essentially, it’s the Pareto Principle, or ‘the 80/20 rule’, at its insidious worst. 20% of your clients managing to consume 80% of your time.

And that’s no way to run a business. The plain fact is this: Some customers are more valuable than others, and some are more trouble than they’re worth.

So what’s the solution?

Here is a simple exercise (that can be completed in less than an hour) to cut the wheat from the chaff.

It works like this:

  1. List the criteria that makes a great customer according to you
  2. Grade each customer on your chosen criteria
  3. Rank your customers according to their grade

You then optimise your processes, products and services to really work for your most valued customers, and, conversely, encourage your bad customers to change their ways or hit the highway.

Classifying your customers into groups according to quality (‘A’s for your very best customers, ‘D’s for your very worst) helps you focus your efforts on your most valuable clients and attract more of them. It also helps you identify which customers you are costing you more than your time is worth.

It’s about clarity and it really is that simple.

Your ABCs (further definitions)

Here is a handy breakdown of the As, Bs and Cs, courtesy of Action Coach.

“An example of an A graded customer is someone who pays their bills on time, is pleasant to deal with, is happy to pay your marked prices, sends their friends to do business with you and spends a reasonable amount of money with you each year.”

“Your B grade customers aren’t quite the perfect or model customers, but are still worth having. They might be a little more price conscious, yet still pay on time every time.”

“Your C grade customers would probably be the type who would return goods for a refund just because they changed their mind, would haggle for as big a discount and they could get every time, would not listen to your advice, and could have past due invoices.”

“The D’s are the group you never wished you had. They are creating a scene in your place of business. They treat you and your team like dirt, always complaining about your price and never are satisfied with the products or service. These customers are always late payers and cost you time and money in collection and finance charges.”

With that in mind, the next step is to create a simple document populated with your clients in their appropriate categories.

One way to do it is via the ‘four-box method’, here courtesy of New Results Training.

A Customers

B Customers

  • Love what you do
  • Can afford your products & services
  • Consistently buy from you
  • Come to you first
  • Love what you do
  • Don’t have constant demand for your product
  • Product may be saturated in them

C Customers

D Customers

  • Can afford you
  • Want great service
  • High expectations
  • You’ll have to work hard for their business
  • Don’t spend much money with you
  • Expect highest quality and bottom prices
  • Have bespoke requirements but expect off-the-shelf prices
Source: http://www.newresultstraining.co.uk/wp-content/uploads/2016/03/website-resource.pdf

So now what?

So you’ve established how your clients deal with you. Now how are you going to deal with them?

Repeating the four-box format, create a ‘Behaviour Matrix’ that creates something of an action plan for you to reciprocate appropriately.

A Customers

B Customers

  • Love them
  • These are the core of your business
  • They will bring new customers to you
  • They will recommend you to new customers
  • Ask for referrals
  • Upsell them
  • Ensure you have covered all aspects of their business

C Customers

D Customers

  • Make sure your deal is explicit
  • Clearly define your offering
  • Go over your terms and conditions
  • Ensure they fully understand what they will get
  • DON’T WASTE TIME HERE
  • Move them on by increasing their price
  • They will either accept and become Category C, or they will go to your competition
  • Either way, you’re better off
Source: http://www.newresultstraining.co.uk/wp-content/uploads/2016/03/website-resource.pdf

Next steps

First things first. Celebrate your best clients. These are the companies who are obeying ‘the golden rule’ so to speak, so thank them, congratulate them on a job well done, and do what you can to strengthen those bonds, especially if you’ve been neglecting them while you attend to your problematic clients. Offer them extra service or ‘good-behaviour’ discounts as a way of saying thanks, and put their names down on your Christmas card list.

B clients are still good clients, so send them some kind words, and take the opportunity to improve relations further. Ask them for referrals, schedule a meeting to find out what opportunities you might be missing out on and make sure they’re on your mailing list so they can take advantage of your offers to upsell.

Next, you’ll have to address your unprofitable C and D level clients and move them into profitability. There are several ways to do this. For clients who simply demand too much of your time, renegotiate terms or change the way you deal with them. Remove dedicated service reps and replace it with help desk service or email.

For problem clients, it’s hugely important to tighten up payment expectations and invoicing. Debt management software can automate this process, freeing up precious time and allowing you to avoid awkward (and potentially costly) calls chasing invoices. Debtor Daddy’s automated debt management solution integrates with existing accounting software, offers a free 14 day trial and can be set up in minutes. It allows you to customise your interactions (according to the scale of the problem) and to eliminate the stress and time-sink of debt collection from your working day entirely.

If a client is simply beyond redemption ­- and if all your attempts to move them into profitability prove futile – you must be prepared to let them go. If they are unable or unwilling to become A or B tier clients, state your final terms and ‘fire’ them. This may be difficult (and may feel highly counterintuitive), but it’s necessary (and is the whole point of this exercise).

When it does come time to cut the cord, be positive and polite (remember, they’re not bad people, just unprofitable clients), reframe the issue so it doesn’t come off as a personal attack (“It seems your requests are outside our scope”), and apologise that you have been unable to meet their expectations in this instance.

Maybe even suggest an alternative. A competitor perhaps.

Good luck.

Sources:
http://www.sbnonline.com/article/know-customers-arent-worth/
http://www.newresultstraining.co.uk/wp-content/uploads/2016/03/website-resource.pdf
http://www.actioncoach.com/The-ABCs-of-Firing-Your-Customers!?pressid=915

Jonathan Cotton Debtor Daddy

Debtor Daddy works with your existing online accounting software proactively reducing your debtors and increasing cash flow