Firing a Customer

I know it sounds backwards in a time when companies are scrambling to get each sale, but believe it or not, it can be an enlightening time for businesses who take the time to look at their current customer base and evaluate each customer. You may find there are a few customers that need to be fired.

Poor customers can demoralize your sales team causing frustration and lowering employee morale. Additionally, you may find that the effort by your entire team—including yourself—is not worth the amount of revenue he/she brings to your company.

There are a few different ways to address this issue with your customer. Evaluate them all based on your situation and desired outcome before taking action. For example, can your company survive losing the customer? What impacts will it have on other customers? Can you sales team make up the difference of revenue lost? If you don’t take action, do you risk losing valuable sales team members or customer service managers?

Here are some ideas from our business owner members who've taken this step in their business:

1. Give a 3-month notice that you’ll no longer be providing the product/service--or even just part of it. (This generally works best in a distributor environment.)


2. Raise your price with 30-day notice—this either forces the customer to pay the increased cost (which is valid for your headaches and extra effort for this customer) or find a new solution.


3. Raise your price by 10 percent each quarter—this allows you to possibly keep the customer, but get closer to achieving a profit margin from him that is acceptable for the extra effort.


4. Modify your service agreement to compensate for the extra time and effort. Some companies call this a “headache tax”.


5. If decreasing morale is an issue with your sales reps, consider revising their compensation plan when faced with known “tough” customers.

Of course, I recommend you vet out all the possible options with your internal planning team, executives and possibly other advisors to the company. It’s important to consider legal, financial, public relations and other side effects of such a change.