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When should you fire a customer - and how do you do it?

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Should you occasionally break up with a customer? Yes. Should you do it at the first sign of difficulty? No. So how do you know when is appropriate - and what steps to take?

27th Jan 2022
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Customer relationships have to be win-win. If they aren't, it's time to end it. However, it shouldn't be a quick decision, nor should it happen in an email or text. There is a process, and today we will look at when and how you should sack a customer.  

This topic came up on a recent podcast. Robert, who works in software development, has a pickle from time to time with annoying customers. Sometimes, Robert says, no matter how much time, effort, and investment you put into improving the customer relationship, it remains dismal from both perspectives. While Robert believes in fixing the relationship, he also wonders if there is a point where it makes more sense to go their separate ways. How should companies decide when and who should make the final decision? Also, Robert wants to know if there are any traps to avoid in the process. Finally, Robert asks how to handle firing a customer in the best possible way?

Now, we have covered this ground a little before on the podcast, with our episode, "Why You Should Be Proactively Firing Customers Without Hesitation." In it, we introduce the idea that complex customer relationships take a toll on your organisation in the form of resources and employee experience. In some cases, they can drain the organisation to the point that it is no longer worth continuing. So, despite the title, we recommend "hesitating" a bit by trying to resolve the situation first before letting them go. 

So, how do you decide to fire a customer?

Deciding whether to let a customer go starts with two broad areas of analysis. First, organisations should consider the financial and interpersonal perspectives. 

  1. Financial perspective: does the customer cost more to serve than they bring in in revenue? In almost any industry, there are customers where you are losing money by letting them buy from you, either in terms of product returns or customer acquisition costs relative to revenue earned. These customers make it easy to see that things should change. 

  2. Interpersonal perspective: does the customer wear down the team? This second group is trickier because they might be profitable to your bottom line. However, if working with them is a terrible and challenging experience, they could destroy your employee experience—and drive quality employees to look for other work. Therefore, it would be best to consider whether it's worth keeping them.

Once you have looked at these areas from a broader perspective, it is best to take a more detailed approach to the process. First, companies should analyse the long-term value of those customers. Are these customers strategically important? You should take a beat before getting out the ax if they are. Right now, you might not necessarily earn the revenue you want, and they may not make economic sense, but they might down the road. For example, they might be a large brand that reflects positively on you based on your relationship. Maybe they are excellent at adopting new products or services you release. It could be that the company is helpful to your organisation in some way. So, sure, they aren't "profitable," but maybe they benefit your company in other ways. This one works the other way, too. You should consider if the company has a bad reputation, and their association as a customer reflects poorly on you. 

Companies should also look closely at the number of resources it takes to service the customer. Of course, some customers need more time and attention than others, and that's normal. But there are limits. Customers should not create work in simple parts of the relationship. For example, if the customer in question doesn't pay their bills on time or asks for extended payment terms, it requires much effort to get your compensation, which is an area that should be simple. Effectively, your company is now subsidising theirs. 

Who should decide?

As many of you know, my experience is working in large telecom with corporations in the business-to-business area. We had demanding customers that took up resources, too. However, in an organisation like my former employer, deciding to cut a customer would have been different based on who was making the call (please forgive the pun). The benefits and costs of working with a customer are distributed unevenly across the organisation. So, while these decisions affect the entire organisation, some people feel them more acutely than others. 

Biases within an organisation also cloud the decision. For example, if left to the sales department, firing a customer wouldn't happen. The sales team's compensation and work performance-related metrics are linked to their active accounts. Also, sales teams often have no idea about account management costs, whether the account requires extra effort for timely bill collection, or how those difficult contact centre interactions take a toll on the organisation. So, these operational factors would not influence the sales team's decision. 

Therefore, the decision to fire a customer needs an independent voice. An outside consultant is a great choice. They can take a hard-nosed perspective an internal person can't. 

In other words, consultants can tell you that your baby is ugly; Bert Scroggins in marketing cannot.

What are the traps to avoid when deciding to fire a customer?

Robert wanted to know if there was any mistake to avoid in your decision process. There are a couple actually, which include:

  • Not counting all the resources involved in the account management: I mentioned this in my sales team example, but it bears repeating. It is surprising how many departments work on an account and the time and money it costs to handle any customers, let alone a difficult one. To avoid this mistake, I recommend converting this into a number representing the hours per week spent managing the account across departments, from marketing to accounting to the contact centre employees. Then, determine the costs of those hours in the organisation. Another number that could be helpful is to compare those account management costs to account acquisition costs and see which number comes out ahead. 

  • Not seeing the signs of your responsibility in the problem: Customers become difficult for many reasons, not just one. Part of the problem could be coming from you. To avoid missing your responsibility in the situation, you should analyse account revenues to see if there is a point where they started to decline. Also, look for internal cutbacks on services to the account. It could be that you accidentally contributed to the problem, and you could fix it by changing it a bit operationally. 

  • Not reading the outside influences: Another pitfall that can lead you astray in your customer decision-making can be coming from outside your specific relationship with that customer. For example, you should consider your general customer satisfaction scores for your organisation in general. Is it only this account, or are all your accounts reacting? If your customer satisfaction scores are high, determine whether those scores are unbiased. In other words, are you getting a falsely high score because of the way you ask or the group you ask?

  • Deciding to fire them before you fire them: Sometimes, you have quit a customer relationship before you fire them. Subconsciously, you can be pulling back from it long before you have the conversation with them. Moreover, if the customer can't get what you have anywhere else, could the difficulties stem from frustration with what you now provide?

How do you fire customers?

Maybe you have taken a challenging and comprehensive look at the customer relationship and determined that it isn't salvageable. Perhaps it is time to cut them loose and make them the competition's problem. If this is the case, Robert wanted to know how to do it best. To that end, I have seven steps of a process for him. 

  1. Realise different customers need a different approach. There is no universal approach to firing customers. Customers need an individualised approach. Moreover, there is not just one person in a large account that you deal with, so various people in the organisation will require an individualised approach, too. However, the message should be consistent no matter the process. Also, as we mentioned in the podcast last week when discussing how to build relationships with customers, the most invested person at the account getting fired should get a face-to-face conversation, not an email, letter, or text. So, please look at the following steps as parts of a customisable process. 

  2. Frame the situation appropriately. I'd be honest with the account, confronting the issue in the most positive way possible. Tell them the reasons why it's no longer working for you and the relationship is no longer a win-win. 

  3. Explain the logic. Show them how you decided by sharing the approach you took to arrive at it, including any estimations or numbers that you have.

  4. Prepare for an emotional response. The account representative will likely feel passionate about getting fired, and it might not be pleasant. However, respond appropriately. 

  5. Apologise and be empathetic. Please recognise that you probably made your contact's job harder, or they might face internal backlash due to your decision.

  6. Offer to help with the transition. It would be best to have suggestions of the following steps. Be prepared to give them a timeframe for when they will transition out of your services, what they need to start a relationship with someone else, or a referral to a similar company. You mustn't leave the newly fired account high and dry.

  7. Stay in contact. You never know what will happen later. Try to keep the relationship intact as much as possible because people move on to new jobs and organisations. It could be that your contact wants to start up with you at their new employment. That personal connection can remain intact even if the business relationship is over. 

Balance is critical here. How this decision plays out has implications for your company and your reputation. It would help if you were firm but pleasant. At the same time, it's a good idea to keep the door open to future endeavors. 

Moreover, the decision to fire this customer should also show you the type of customer to avoid in the future. The reality is, no company can serve every account, and you need to know what kind of customer you fit best. Then, target that type of customer in your future customer strategy sessions. The last thing you want to do is endure a repeat performance in a similar, and just as tricky, account. 

There will be times when a customer relationship doesn't work. However, it is essential that you appropriately handle the decision to fire a customer. It should start with an analysis of the relationship from a financial and interpersonal perspective and go from there. People not invested personally in the stakes should handle it, and it should also take a hard look at the causes. Finally, if the relationship isn't salvageable, a customised version of the seven-step process should lead your tactics. 

Generally, when it comes to firing customers, it requires taking a hard look at all the factors contributing to the problem. Should you occasionally break up with a customer? Yes. Should that be the first thing you do at the sign of difficulty? No. Are there other potential solutions here that the organisation should investigate first? Always.

I hope that our advice for Robert was helpful to you also. Maybe you have a different pickle in your customer strategy? 

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Aki Kalliatakis Photo
By aki.kalliatakis1
04th Feb 2022 13:36

People in my presentations are always surprised, Colin, when I mention that customers are NOT always right and there are some who should be fired. "But aren't you the guy that talks about customers being always right?" they ask. And I have to remind them that it's not always true.

I'd add one extra point to your excellent article, and that is: once you have decided to stop the relationship, one way to not-so-subtly do so is to make the price so high that it's not worth their while to do business with you anymore. There are some obvious risks involved, and it won't work in many industries, but it is an option.

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