Guide to Firing a Customer

At first blush, the thought of firing a customer might seem contrary to good business. After all, your company is built around winning customers and keeping them happy, so why would you give a customer the boot? Because he has become a drain on your resources, and ultimately unprofitable. As you grow and acquire bigger clients, some smaller clients may require too much effort to service when you consider the profits (or lack thereof) they generate. In addition, as your business evolves, your products or services may change and no longer be suitable for certain customers. Often your customers’ own behavior makes them a resource-drainer. For example:
1. You tell them in writing that your invoices are payable in 30 days but they consistently wait 90 days.
2. They routinely expect you to provide more services than you agreed to.
3. You have kept their fees below the market rate for years, and they balk at your plans to raise their fee to the going rate.
4. They are verbally abusive to you or your employees.

Action Steps
The best contacts and resources to help you get it done

Determine the financial ramifications

It may seem crazy to drop a customer who supplies your business with a steady stream of income. But if you take a closer look at the time and effort you devote to the customer, you may find that it’s costing you more than you think. Dealing with a difficult customer can also take a toll on employee morale and productivity.

I recommend: Financial Metrics Pro offers spreadsheet templates for use with Microsoft Excel, that help you calculate your return-on-investment for each customer. ZeroMillion.com has a downloadable Excel spreadsheet for figuring out the average lifetime value and profit from your customers.

Stick to your contract

Make sure that you sever the relationship with the client in accordance with the terms of any applicable contracts or agreements. Your contracts should specify a period of notice (30 days, for instance) for termination of the agreement and indicate if the notice must be in writing.

I recommend: Download standard contract forms that you can customize at FindLaw For Small Business. To find a lawyer in your area who can help you draw up a contract with specific provisions for termination, go to Small Business Law Firms.com.

Say good-bye tactfully

If you aren’t sure how to tell a problem customer that you no longer want his business, you might need a few lessons in how to conduct difficult conversations.

I recommend: If you can’t find an appropriate business communications course at a local college, check out The American Marketing Association’s seminar schedule. You can also participate in teleseminars, such as those presented by Tim Ursiny, author of “The Coward’s Guide to Conflict.”

Make it their idea

You can get rid of a customer without insulting them. Tell him that you’re raising your prices (and hope that they choose to go elsewhere). You can also inform him that your business is going in a new direction and will no longer be able to meet their needs. Always offer recommendations to other suppliers or service providers who can meet your customer’s needs.

I recommend: Come up with new pricing strategies using a profit-margin calculator from Bankrate.com.

Keep employees in the loop

Once you’ve severed your relationship with a customer, inform your employees provide instructions about what to do if the customer returns to your store or calls your office.

I recommend: A contact management program such as ACT, lets you keep all of the nitty-gritty details about each customer in one place, and make those details accessible to employees who need the information.

Tips & Tactics
Helpful advice for making the most of this Guide

• When it’s time to fire a customer, show him respect by telling him in person. If he is located out of the area, have the conversation by phone. E-mail is too impersonal.
• Control your temptation to unleash a barrage of insults at the customer. Consider your reputation in the industry and keep the conversation dignified. Remember, word can get out quickly via the Internet if you handle the situation poorly.
• Be prepared for the customer to argue that his intentions were misunderstood, or that you are being unreasonable. Be open to discussing ways that the two of you can compromise on your points of contention.
• Consider referring the customer to another supplier. It will leave the customer with more positive feelings about your company. Call the supplier first and let him know why you are firing the customer so that he can decide if he wants to be referred.
• To help ward off problems with future customers, ask them to sign a contract that spells out terms and conditions such as the extent of the services you will provide for a particular project, and the actions you will take if they lag on paying their bills.