Firing a customer may seem like a daunting proposition in this economy. But, sometimes, it has to be done. “A single bad customer can practically destroy a business,” says Ken Gaebler, a small-business expert and head of Gaebler Ventures in Chicago. According to Gaebler, the wrong customer can lead to everything from employee resignations to declining profits.
What exactly constitutes a bad customer? That depends on your business. It can mean someone who simply isn’t profitable, demanding more time than is cost-effective. But it also might include a customer who consistently pays late, is never satisfied, requires too much hand-holding, or is downright verbally abusive.
Here’s what to do:
Figure out if there’s another option. Before you cut the cord, analyze the situation carefully, assessing the root cause of the problem to see whether there’s a way to fix it. You might, for example, reduce antagonisms by switching an irritable client to a more-patient account manager. Or, try to change the pricing structure to make the relationship more cost-effective. If you can’t find a solution, however, says Gaebler, “Look for a graceful exit.”
Watch your timing. “Make the change when it will have minimum negative impact on your company,” says Gaebler. That means, for example, waiting until after you’ve landed another comparable account.
He points to the owner of a software integration consulting firm where a handful of key employees recently quit in rapid succession. Turned out, they had all left for the same reason: a condescending, verbally abusive client who also tended to flip flop on decisions. After pinpointing the problem, the owner decided she had no choice but to walk away from the client. But, she did so by waiting until she landed a new account of comparable size.
Dial down on the antagonism. Naturally, you want to end things amicably. Best is to wait until a natural pause in the relationship—say, when it’s time for a contract renewal. Then, be as diplomatic as possible. “Explain that you feel you’re just not the best fit,” says Debra Condren, a business psychologist who heads Manhattan Business Coaching, a New York and San Francisco-based consulting firm. And try to offer one or two referrals to other vendors. You might also want to talk to an attorney about just how to frame what you say. “You have to cut them loose in a professional way,” says Condren.
Take it slow, if possible. Unless the situation is urgent, phase out clients slowly. “You don’t have to get rid of deadweight clients immediately,” says Gaebler.
Case in point: After the owners of one marketing firm analyzed their profit and loss statements recently, they realized that a number of small clients were taking time away from serving bigger accounts. But many of those folks were long-time clients who had come to rely on the firm for strategic advice. So instead of firing the small-fry immediately, they decided to close out the accounts over time, helping the clients to reach a stage where they no longer needed the firm’s consulting services. At the same time, the company introduced new minimum prices.
Decide whether it means something bigger. If you continue to attract bad customers, there could be an underlying problem with the business. That could range from pricing that’s too low to poorly constructed contracts. In that case, you’ll need to attack the deeper issue.
Learn the red flags beforehand.Of course, you can avoid dealing with bad customers by not doing business with any to begin with. That involves learning the warning signs. “The best predictor of future bad behavior is past bad behavior,” says Condren. If prospects reveal they’ve had several unsuccessful relationships with other vendors, for example, it could indicate a pattern of conflict—and that the same thing will happen to you. Also, make sure there’s a good cultural fit between your company and a potential client. If the match is out of whack, it could be the makings of later problems. “You have to learn to say no to a new client,” says Condren. “Or you’ll regret it later on.”