Fire Bad Customers

Fire Bad Customers

Fire Bad Customers? Are you crazy? It’s hard enough to get customers, why the hell would you fire them?

We all know this, not all customers are created equal so fire your bad ones.

I recently worked with two CEO’s who were complaining about their customers. In one instance the CEO was asked to submit a proposal to an existing customer and who was applying pricing pressure. When I asked him why this customer was so important to him, he said they represented about 40 percent of his company’s gross revenue. Upon further digging I found out that the 40% revenue customer only produced 2% of his profit. It became clear, that: 1) winning this barely profitable customer at a discount might be losing and, 2) that there needed to be a methodology to evaluate the value of a customer.

I’m a student of the human mind and how we often we make bad decisions. I know that if we go with our gut, we are just as likely to be wrong as we are to be right.  Study’s show that even the best statisticians make poor statistical judgments when they’re pulling answers out of their butts.

If CEOs formalize an evaluation process, if they’re intentional about which customers to chase, which to ignore, and which to drop… they’d be better off than seat-of-the-pants decision making.

Fire Bad Customers? Why?

  1. Opportunity Cost – supporting them comes with an opportunity cost, they keep you from chasing good customers
  2. False Health Signal – having lots of customers and lots of revenue (even money-losing revenue) give a false sense that your business is healthy
  3. Growth Limiters – supporting difficult, hard to support, profit-less customers are bad for morale and limit growth

So create a system to evaluate customers. Back-test it on your current customers. Then use it before you decide to chase a customer.

Here’s an example of a customer evaluation using weighted factors to determine a score. In this example, Customer A would be a great customer and Customer C is a the fire bad customer poster child.

Cust A
Trait Weight Client Score Weighted Score
Healthy Business 3 4 12
Coachability 4 5 20
Profitable 3 5 15
Interesting/Fun 2 2 4
Can I Add Value 5 3 15
  66
Cust B  
Trait Weight Client Score Weighted Score
Healthy Business 3 3 9
Coachability 4 4 16
Profitable 3 3 9
Interesting/Fun 2 2 4
Can I Add Value 5 2 10
  48
Cust C  
Trait Weight Client Score Weighted Score
Healthy Business 3 1 3
Coachability 4 4 16
Profitable 3 1 3
Interesting/Fun 2 1 2
Can I Add Value 5 2 10
34

Now let’s look at C, maybe before I fire that guy, I give them a new proposal that drives the profitability up to a weighted score of 15. That would make the total 49.  That would make them salvageable.

If you evaluate your prospective customers by using a methodology like so, you would improve your bottom line. For instance, you might raise their price and still retain the unprofitible. or you might specify a coachability requirements and get the customer to agree to meeting these requirements wich would make them less of a resource drain..  Raise the coachability score or fire bad customers.

Bottom line… fire bad customers.  Do you have bad customers? You don’t really know if you haven’t evaluated them systematically. Should you bid/no-bid for that new company? You don’t know if you haven’t listed and weighted all the traits that make a customer good or bad.

Want to know if you would be a good coaching customer for me? Let’s have a no-commitment, no-strings-attached, complimentary coaching session.  Let’s discuss which customers you should be firing. Press this button and schedule an online coaching session.