When to Fire Your Customer

Last Updated May 4, 2011 3:51 PM EDT

Not all customers are equal. You probably know who your top customers are - but do you know which ones you should be getting rid of?

Many leaders preach the gospel of Customer Service and the need to exceed at all times the needs and expectations of their customers - and I'm all for that. And nobody likes the idea of foregoing revenue. But every business has a few customers who don't add to the business; they drain it dry.

How can you spot them - and what do you do?

1. Project into the future.

Low volume customers are maddening because, of course, you always hope that you can gradually persuade them to buy more. But if their core business is tiny, their capacity to put more work your way is limited. Do the estimate: What is the maximum volume of business you think you could ever get from each customer?

2. Calculate the headache ratio.

Bad customers exploit your desire to be known for fabulous service. You want customers who force you to improve your game - but only if doing so builds your business. Track how much time demanding customers absorb and compare that to the revenue they bring you. Then compare that ratio with the same ratio for every other customer you have. The bottom 5-10 percent are probably not worth your efforts.

3. Think about who's paying and when.

You know to drop the customers who don't pay. At least I hope you do. But who pays really late - and do you know why? Often, the slowest payers are the biggest companies. That means it's an accounting department policy and there's nothing you can do about it. But in smaller businesses, late paying usually means you better Invoice early and often.

4. Assess their values (not the dollars-and-cents kind, either).

The best working relationships are those where the company and the client share values. If you're both straightforward and transparent, deals are easy. If one party is manipulative, and you aren't, you have a problem. First, they'll be hard to work with. Second, there's the danger that the more work you do together, the more you will assimilate to the nasty company's processes. And finally, all your internal value statements will be discredited if your team can see that you will put up with behavior from clients you wouldn't accept in your own people.
Diana Pohly, one of the most values-driven CEOs I've ever known, encountered this in her custom publishing business. "I realized," she told me, "that if I let the client do things I wouldn't accept internally, no one would take the company values seriously. I had to put my money where my mouth was. If you believe in values, you don't work with people who don't." Her conclusion: Firing that client said more about the company to her employees and her other clients than any number of mission statements and company meetings.

So who are you going to fire today?

image courtesy of flickr user, Gage Skidmore

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    Margaret Heffernan has been CEO of five businesses in the United States and United Kingdom. A speaker and writer, her most recent book Willful Blindness was shortlisted for the Financial Times Best Business Book 2011. Visit her on www.MHeffernan.com.