We’ve all heard the expression the “customer is always right,” which isn’t necessarily true. More importantly, we need to understand that not every customer is the right customer for us.
Here are five reasons why we should consider ditching customers who are potentially bad for our business.
1. They detract from your brand.
Many companies spend a lot of time on their branding. I had one client who had a very detailed handbook about their branding. It specified everything. The exact color of their logo, it’s positioning, which backgrounds it could be used with. Which logo went with which type of offer, or article. Their attention to detail was intense.
Why? Because branding is important.
One aspect of branding that is sometimes overlooked is the customers that you serve. Your customer can say just as much about your brand as any aspect of your marketing.
If you start attracting the wrong customers, it can actually damage your brand with your target customers, and cause a drop in revenue or lost revenue from customers who choose to shop elsewhere.
Once the wrong customers start to become highly visible or vocal, then it’s time to ditch them, before your ideal customers ditch you,
2. They treat you like a bank.
When I worked in corporate one of our goals was to get the best payment terms possible. This could end up with us paying 90 days after the month in which the services were delivered which was great for us, but bad for the supplier. And I have even seen cases where the terms were as long as 120 days, which can make cash flow very difficult to manage.
That doesn’t mean that every client you pay in advance, or pay within seven days, but it does mean we need to be mindful of customers who take that approach as the cost of capital can quickly eat into profits.
3. Their attitude is always ‘give me more.’
We all like to negotiate a good deal. But when we are looking to create long-term relationships, the best way to do that is through win-win agreements. That doesn’t mean every agreement with a client is win-win, but over the course of the relationship, this should look to be the case. If the client is constantly looking for win-lose deals which consistently favor them, then profits are just going to get eroded over time, as they ask for more and more.
If you have clients, who demand first class service at bargain basement prices, then it’s time to look at letting them go.
4. Your staff no longer want to work with them.
I’ll never forget my first full-time job. I worked in a Casino as a roulette dealer during a university gap year. It was a great job; I loved it. But there were one or two customers who were just horrible to deal with; they were loud, abrasive, rude and critical of everything. No matter how much you tried to please them, you failed.
It got so bad that staff would do anything to avoid them, the would trade shifts, work different tables, anything. These customers had a detrimental impact on the morale and stress levels of the team.
Eventually, it got so bad that the manager threw them out and banned them from coming back. Such was the relief; the staff had a celebration to mark their event.
It’s not just bad bosses that can make an employee’s life hell. If you have customers that fall into this category, then you should address it. Not only your staff but potentially other your customers will thank you.
5. They’re just not profitable enough.
Several companies where I have worked they all did revenue v cost studies to see who were their biggest client. And in each of those cases, they saw that 80 percent of revenue came from 20 percent of the clients.
Now while this is great information, what we really need to know is who are the most profitable clients, both in percentage terms and also in value term.
It’s so easy to be seduced by revenue and to see the customers who bring in the most revenue as the most attractive. However, just recently I was working with a client, and they had done a study which showed that their largest customer was actually their least profitable customer in percentage.
From a revenue perspective, the customer represented over 55 percent of the companies overall revenue, but the profit from this client was less that 25 percent of all profit. These were a high revenue, high maintenance client, low profitability.
Now while they couldn’t fire this client because of their size, what they did was to make themselves less dependent on them. Focusing on building up other clients until they were at the point they could survive without the former biggest client. Just because it was the biggest part of their business didn’t mean that it was the best part of their business.
Customers are the lifeblood of any business, but they need to be the right customers and customers who are good for your business.
This article first appeared in Entrepreneur magazine.