Should you fire a customer?
Should a customer always be treated as “King” or are there times when it is no longer viable for a business to deal with a particular customer? While the underlying principle that ‘the customer is always right’ and should be treated as “King” should apply, there are situations where it needs to be assessed whether it is worth dealing with a customer or not. In essence, if the customer is no longer acting as a customer, purchasing products or services that provides reasonable profit to the business, then the firm should reserve the right to walk away from this relationship.
When dealing with a customer is negatively impacting the business or not generating sufficient profit, then management need to understand the root cause of the situation and take necessary action -even if that means firing the customer.
All businesses do make mistakes and products fail for a variety of reasons. In these situations, a customer should be returned as quickly and fairly to a situation of “before the failure”.
This is when I would consider firing a customer
Slow or non-paying customer, if a customer does not pay on time, then, follow up, finance and bad debt risk can be more than the customer business is worth. In such situations it is better to walk away from this business.
Insufficient margin, if business provided by a customer provides insufficient margin it may be better not to participate in this business.
Eighty twenty rule, you may find that a few customers bring in 80% of your business. The cost to service a large range of small customers cannot always be justified.
Demanding customers, some customers can be extremely demanding. The cost to service demanding customers may not provide sufficient return – especially when you are the weaker partner in the arrangement.
Negative cash flow impacts, some customers’ business can have a negative impact on cash flow and put the business at risk. These risks must be carefully considered before this business is taken on.
Walking away from can have a negative impact, especially with social media ramifications. Jeff Bezos quoted (Founder and CEO of Amazon) “If you make customers unhappy in the physical world, they might each tell six friends. If you make customers unhappy on the internet, they can each tell 6,000”. When a company decides to walk away from the business of a customer for valid reason, provided the business has just cause and it is done in a sensitive manner, customers are generally understanding.
Firing a customer can be an option, but it needs to be carefully considered and done in a prudent manner. Hopefully, these situations are limited, and all customers develop into long lasting profitable relationships.