Why it's ok to fire your customers
In my early career, I never thought I could fire a customer. I felt like if a customer wanted to be a customer, I should let them. However, I have changed my opinion over the years. Now, I believe that the customer relationship goes both ways and customers that aren’t treating your organisation or employees well should get sacked.
In my global Customer Experience consultancy, I have refused to work with some organisations. I skipped their project because I didn’t feel like they were serious, and, in my experience, if an organisation isn’t serious about their Customer Experience program, then it won’t be successful. I didn’t want my organisation to be associated with a failure that was because of lack of commitment to the concept.
We discussed firing customers in a recent podcast. I was inspired by Frederick Reichheld’s article, “Firing a Bad Customer in 2021.” Reichheld is the author of many books on customer loyalty and invented the Net Promoter Score (NPS). Reichheld believes that taking feedback from the wrong customers makes frontline employees feel more alienated from the system of the NPS. Your frontline employees, Reichheld argues, should be empowered to choose the customers from whom they receive feedback.
Why the power of the 20% shouldn't extend to the other 80%
You will remember the 80/20 rule which essentially says that 80 percent of a given product originates from 20 percent of the participants. Many distributions are skewed such that a small proportion of people generate the most revenue or the most profit or the most content. The same is true for your customers. A small group of customers (20 percent) generates most of your revenue or most of your profit (80 percent).
The idea of firing your customers is looking then at the other end of the distribution, within that 80 percent not making most of your revenue. In some cases, there’s even some at the very end of the continuum who might cost you money. Whatever small amount of revenue they generate, these customers take up more employee time, complain more, and turn off other potential customers for you. You should recognize that the revenue they generate is not worth the costs you spend on servicing them and fire your customers if that’s the right business move.
I spent 20 years of my life working in a large telecommunications company. We found was that many customers we had defined as our best customers were in truth the ones who shouted the loudest. These squeaky wheels were the most visible customers, but maybe not our best ones. We also discovered that when they were squeaking, we would add resources to manage their accounts. However, we never removed the resources, even after we had resolved their issue. We ended up where we had customers generating decent revenue, but nowhere near the revenue they should to warrant the resources that we had devoted to the management of the account. I suspect this problem was not unique to my organisation.
Also, in an Orwellian, Animal-Farm way, all customers are important, but there are some customers that are more important than others.
Holding customers to account
We conduct Study Tours for clients at Beyond Philosophy. A study tour is where we take our clients to many different exemplary organisations for Customer Experience. We talk with the senior management about what’s happening there and how their organisations go about things. The idea is to present a real-world example of what is possible in Customer Experience to inspire our clients to follow in their footsteps.
One of these Study Tours, we were talking with the general manager of the Mandarin Oriental and he told the group that he had just fired a customer. Having set the company up as an outstanding example of Customer Experience, I was surprised, so I asked what happened. The general manager of the hotel explained that the customer was abusing one of his employees and the general manager wasn’t prepared to accept that abuse of his team. I thought the idea that he wouldn’t accept the abuse of one of his team was brilliant.
There is no excuse for customers behaving uncivilly towards the employee. You might have heard something like, “the customer is king.” We all know that kings were not always civil to their subjects. This idea of firing the customer pushes back on that and says customers need to be held responsible for their behavior as well.
One example of an organisation that handles this well is Uber. If you are a user of the ride-share platform, then you know that the customer writes a review of the driver. However, the driver also reviews the customer. If a customer gets a one-star review, that serves as a warning to others.
This example demonstrates one of the non-financial metrics: geniality. Some customers might be terribly profitable, but serving them is miserable. In extreme cases, it could be because they’re abusive, but in other cases, they might be exhausting. When a customer is lacking in geniality, it is worth determining if having that account is worth it. Organisations should fire customers who are abusive to their employees. It’s good for employees and, ultimately, good for customers who hopefully learn their lesson about treating people with respect.
However, it doesn’t have to be that extreme, either. You can also reallocate your resources. You might spend your time working with customers that are more pleasant. You are not sacking customers at that point, but you are optimizing your resources for similar business outcomes and employee welfare. The squeaky wheel, in this case, wouldn’t always get the grease. Some profitable accounts are high margin and low maintenance. Your customer attention should be saved for your most profitable accounts and if those are also the ones that are the best to work with, then you really need to keep them happy.
Amazon understands this idea of prioritizing customers based on behavior. Amazon has enough data about their customers that they have created profiles of people. While Amazon understands that returns are part of the cost of doing business, they know who returns excessively (Guess what? It follows the 80/20 rule!) Amazon has fired customers because of too many returns.
Also, firms are aggregating data across retailers, so it may be that you could get banned from another website if you return too much at Amazon. (I don’t know that Amazon would share data with anybody else, but you get the point.) As we move into the digital space, people should understand that their behavior follows them. For example, Uber banned customers for bad behavior and then Lyft, a rival ride-share service, banned those same customers. Also, airlines have been known to share data about passengers that were banned from future flights on their airlines.
So, how do you fire your customers?
Firing customers can be a painful thing. Also, if you don’t do it properly, it can result in some bad PR, which isn’t ideal. However, there are ways to handle it to the best possible outcome:
- Be open and honest about why you are firing the customer. The transparency will help address the challenging situation. Then, be consistent in your policy. In other words, make no exceptions, because if you make exceptions, it casts a suspicious light on your motives, which is the last thing you need. People may not like it or want to hear it, but if you calmly reiterate what the issue is and why you’re making this decision, you are managing it as best you can.
- Recognize that we all have a physicalism bias. A physicalism bias is the idea that what’s in front of us gets the most attention. When it comes to revenue or profits, these factors are salient and difficult to ignore. However, you should also bear in mind the hidden costs, like how many resources you employ to gain that revenue, which are not as noticeable relative to the actual dollars coming into the bank account. I would encourage people to take a deeper dive into accounting to include not only what is easy to articulate and enumerate, but also some of the stuff that’s more difficult, like the emotional costs of interacting with a customer. If there is abuse or if employees cringe every time they see that account pop up on the caller ID, it may be time to reconsider the importance of that revenue generated.
- Try to fix things first. It is also crucial to give the offending customer feedback and offer a solution that would resolve the issue before you fire them. Talking through the issue could save the account (and the revenue). Think of it like soccer. First, a player gets a yellow card, then a red, and after that they are sent off the field. A similar type of gradient should apply, with steps that you need to go through before you end up firing the customer.
- Develop an ideal type of customer to target. Consider the type of customer that you do want and the type of customer that you don’t want. If not, you will accept anybody, which could lead to higher costs and decreased margin. Your ideal customers should have more than revenue; they should be profitable. Customers that aren’t the right fit for your product or service are going to end up costing you more than they are worth. My bank in the UK recently fired a lot of customers. They decided they would only accept customers that made a specific threshold of salary amount. I suspect they realized that customers that didn’t fit this criteria were not profitable, so they decided to act on it.
As I said, you should fire a few customers sometimes. My journey to this point has spanned 40 years. In the beginning, I would have thought that firing customers was madness. However, at this side of my career, and knowing what I know now, I would smack that silly, earlier-version of myself, and explain that hanging on to customers that use up your resources, eat up your margin, and abuse your relationship are not worth it. Hanging on to them is the madness. These are the types of customers you hope go to the competition. In fact, in some cases, you might want to make that introductory call…
Colin is Founder & CEO of Beyond Philosophy LLC who help organizations grow by improving their Customer Experience and identifying hidden unmet needs. As a result, the Financial Times selected Beyond Philosophy LLC, as one of the best management consultancies for the last two years.
- Colin is recognized by LinkedIn as one of the ‘ ...