According to consultant Len Markidan, there’s one surefire way to know whether it’s time to dump a customer. “The litmus test is pretty simple: When you see a person’s name in your inbox and you cringe, that person should not be your customer,” says Markidan, owner of Markidan Strategies.
That’s not to say that jettisoning a customer should be an easy or common decision. “The ability to fire a customer is an arrow in your quiver,” Markidan says. “You don’t use it as an excuse to be lazy and not put in the work to build a great relationship with a customer who’s challenging. It’s a last resort.”
Before firing a customer, Steve Cody, co-founder and CEO of marketing and communications firm Peppercomm, believes it’s important to discuss the situation with someone else within your company you can trust. In Cody’s case, he always talks these scenarios over with his company’s co-founder.
“It’s critical to have a sounding board,” he says. “You want to make a decision, but we definitely want multiple people to weigh in before we make a decision to terminate a relationship.”
Here’s a look at three types of customers worth kicking to the curb.
Ditch the Late, Late Payers
When Peppercomm was in its infancy, Cody took on a client that ended up repeatedly taking advantage of his company. After a while, Peppercomm’s cash flow was being negatively impacted. “This client, which was one of our larger ones, kept asking us to put the deposit down for a major event that they were hosting for their customers,” Cody says. These payments were around “$30,000-$40,000, and the client would sometimes take 180-210 days to pay us back.”
Cody allowed the incident to slide once, but not twice. “After the second time that my business partner and I had to put money in to meet payroll, we ended the relationship, just because that was amazing abuse. They just didn’t understand that they were abusing a very small company because they were big enough to do so,” he says.
Cody did try to mend the relationship before severing ties for good, even flying out to see the client. But in the end, the customer just wasn’t that interested in paying promptly. “We tried to have our CFO create a relationship with their CFO,” Cody says. “It was just a losing proposition.”
Like Cody did, Markidan recommends giving certain late-paying clients a second chance, simply because some tend to be a bit absent-minded. “If a customer has good intentions and they don’t pay because they’re forgetful, I don’t think you have to fire them. I think there are a lot of other ways to address that issue,” Markidan says.
One simple strategy would be to require payment upfront before doing any work. Another idea is to ask customers for a credit card number and put them on a recurring payment plan. “If you want to do business with a customer and they’re not acting maliciously, I think you can build systems that overcome their forgetfulness,” Markidan says. “But if you think they’re purposefully dodging you, that’s a different story.”
Abandon the Unreasonable
Some customers aren’t a problem in terms of payment for products and services provided. Rather, the issue lies in the ridiculous demands they place on businesses.
“If the customer is demanding discounts or they have unreasonable objections, then that’s an indicator the behavior is going to continue,” Markidan says.
Cody says he’s fired many clients who have “totally unrealistic expectations” and are simply impossible to please. Such was the case with a customer who expected too much and threw a fit when it didn’t get the exposure it wanted.
“We had one client, a startup, who we were just absolutely getting great publicity for, but we couldn’t get the lead client on the Charlie Rose Show,” he says. “That’s what he wanted, and because we couldn’t do that, they kept on saying we were producing mediocre results.”
Proud of Peppercomm’s work on the account, Cody wanted to submit campaign materials for industry awards. The client responded, “Well, why would you submit mediocre work like that?”
To Cody, that was the last straw – not because he took the client’s comments personally, but because it was an indicator that an ongoing business relationship would become a headache that neither he nor his employees deserved. “I said, ‘You know what? It’s time to end this relationship.’ Wildly unrealistic expectations are another reason you should fire your customer.”
Say Bye to the Abusive
Some customers are simply rude and inconsiderate. They may use profane language or they might just be flat-out insulting. Cody thinks those clients generally aren’t worth keeping, simply for the sake of morale within your company. “You should fire a customer if you’re seeing that your people are being beaten down and are getting to the point where they’re dreading coming into the office,” he says.
Years ago, Cody fired a customer who had, to put it nicely, quite a potty mouth. “We had one client who would use the F-bomb in every other sentence. This guy was just nonstop,” he says. “I kept on asking him to stop doing it. He kept on apologizing, but it kept going on.”
The Peppercomm team that was working on the account was mostly female, and Cody knew they were getting offended. “I called the guy. He wouldn’t return my calls, so I sent him an email and I said, ‘This is to give you 30 days’ notice that we’re terminating the relationship.’” The client did email back, unsurprisingly cursing more.
In most cases, Cody still thinks it’s worth reaching out to clients to draw their attention to poor behavior they may not realize they’re expressing. That said, you have to protect your staff. “We don’t want to lose good people, so I think it comes down to you making a decision: Are you doing this for money, or are you in it for the long term and realize that you get great customers by keeping great people?” he says.
Markidan, meanwhile, has “zero tolerance for abusive customers,” but cautions distributors not to overreact to an isolated negative experience. “There’s an element of empathy here, because I think most of the time when somebody is abusive or disrespectful, they’re probably just having a bad day,” he says. “We all have bad days and we all take it out on the person behind the counter. It happens and it sucks, but it’s a reality.”
If customers, though, chart patterns of abuse or it becomes clear after multiple interactions that this is simply the way they are, then those people have no place in your business, according to Markidan. “It’s not just going to affect your frontline staff, it’s also going to affect the morale of your employees,” he says. “It makes your workplace toxic.”
Avoid Serial Clients
While it’s difficult to spot potential “problem customers” in advance, Steve Cody, CEO of communications firm Peppercomm, says it is possible to spot a “serial client” before it’s too late.
In a recent meeting, Cody was able to learn something crucial about a prospective customer – namely that the client probably wouldn’t stick with his company for long. Cody decided to pass on the opportunity to form a business relationship.
“I was sitting down with the three people from the prospect’s side along with my team, and the senior person says, ‘Look, I know exactly what you do. I’ve probably fired 10 of your competitors in the last five years’” he says. “Red flag right there. This guy is what I call a serial client.”
Choose an Abundance Mentality
Len Markidan, owner of Markidan Strategies, recognizes many small-business owners are afraid to dismiss clients, even if they become more trouble than they’re worth. “That fear comes from the way you think about your business,” he says. “If you have a scarcity mindset and you think customers are these rare gems, of course you’re going to be scared of losing one.”
If, on the other hand, you have more of an “abundance mentality” and you realize you’re delivering a ton of value, you’ll feel greater control over a situation, Markidan believes. You recognize that since you “do the right things, your customers will be happy, they’ll refer their friends and more customers will come to you. Then, I don’t think it becomes such a big deal to lose a toxic customer,” he says.
One way in which an abundance mentality will be easier to embrace, according to Markidan, is to diversify your client portfolio as much as possible. “There are a lot of good reasons to not have one customer be 50%, 30%, or even 20% of your business,” he says. “If you’re diversified, you can make much better strategic decisions about the future of your business without having the risk of losing one large customer.”