Fire your customers? Sometimes their business just isn’t worth it
Posted by: in Stocks Money NewsFiled under: Consumer experience, Competitive strategy, Sprint Nextel Corp (S)
Back in early July, there was a brouhaha over Sprint’s (NYSE: S) decision to terminate roughly 1,000 subscribers because of persistent calls to customer service (the average was about 40 to 50 calls per month).
But isn’t the customer king?
Maybe so, but there are some customers that can wreak havoc on your business. For example, there always seem to be customers that pay late (or not at all). At the same time, they keep demanding more services and changes. It can eat up lots of resources and drag the performance of your business.
True, with some customers it might be smart to take a loss. This would be the case when trying to land a marquee name. In this situation, the customer can be a credibility booster and a reference for future business.
But this is the exception. Basically, to run a profitable business, it’s critical to be rigorous on the return on each customer. Simply put, there are some customers that are not worth it.
Perhaps the best way to deal with this is to screen potential customers. Although, this is not easy — and does take some experience (each industry has its own nuances). Yet, it’s common for business owners to ignore obvious warning signs because they have a hard time turning down customers.
Also, if you are extending credit, you should have a credit application. This means actually checking credit information, job information, bank information, and so on.
To get some more perspective on all this, I recently talked to Michelle Dunn, who is a recovering bill collector (more than 20 years in the business) and the author of books like Ultimate Credit and Collections Handbook
According to her, it’s smart to — once a year — spend time finding customers to fire.
She says: “When I work with business owners, I tell them that each year when they ‘fire’ their top 5 or top 10 ‘trouble’ customers, a good way to fire them is to tell them that since you cannot provide the service that they need, it will be better if they go somewhere else. This way, you are not burning any bridges and you are being honest without going into detail about how this customer may drain your time, and cause you stress with their troubles.”
Or, another approach to is to increase your fees. This is likely to spur the customer to go elsewhere.
No doubt, all this sounds brutal. But then again, bad customers can be frustrating — making things difficult for employees, wasting time, and taking away from your bottom line. In fact, firing a customer can be extremely helpful for your business.
Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements. He also operates DealProfiles.com.
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