Innovation

Peer-to-Peer: Should I 'fire' a major customer?

Written by PROFIT-Xtra

Question

Last issue, the president and CEO of a Winnipeg-based company wrote to ask PROFIT-Xtra readers: “I am considering ‘firing’one of my customers. He’s very rude to my employees, he’s always haggling for discounts and he expects special treatment. However, he always pays on time, and his business is responsible for about 15% of my company’s revenue. I am torn. Has anyone ever had a similar experience?”

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Reader responses

Aimee Lavallee, SBLR LLP Chartered Accountants:

Every company has a few “bad apple” clients, but the truth of the matter is this: what you permit, you promote. If you allow the client to behave rudely to your employees and haggle over price consistently, they have no reason to change. Assuming that you have already tried to turn this bad apple into a better client (e.g., through frank discussions, client-nurturing activities and detailed engagement letters that specifically state your fees upfront), your only real solution is to fire this client.

Admittedly, this is a very difficult exercise to undertake, but think about the opportunity cost of continuing to deal with this client. Consider the reduced morale your team members experience when dealing with him and the extra headaches this client is causing you. Your time, energy and effort are much better spent nurturing your good clients and filling the pipeline with other prospects that will actually value the services you have to offer.

Steve Pallet:

Firing a customer who represents 15% of your income seems rash. Perhaps the situation could be managed with a more hands-on approach from one of the principles.

Find out if this client is dissatisfied with the costs and service of your business. If he is, ask if you can improve in some way while asking him to be understanding that your margins are tight. If he isn’t, tell him that your employees keep telling you it appears something is wrong. Then ask whether he’d like to fix it, since he’s one of your best customers. He likely doesn’t even know he is being hard on your employees. A gentle approach might turn his attitude around.

Jeremy Lichtman, MIT Consulting:

My company has made a bit of a niche for ourselves in dealing with difficult customers. If you’re willing to handle the stress of dealing with an obnoxious client, it can be rather profitable. Most other companies won’t deal with them, so you can charge a premium. And even if they go away for a while, they’ll invariably come back in time.

My advice, though, would be for the CEO to talk things over with his or her staff and get their feelings on the matter before making a decision. The front-line people who deal with this customer probably have some ideas on the matter that may be valuable.

Erkki Pohjolainen, Resources West Inc.:

Clearly, 15% of your revenue cannot be discounted easily. Therefore, I would suggest that you pay attention to the customer’s need to be “special.” You should provide personal service to him through a single contact person at your company, someone who’s thick-skinned.

Elevate your relationship with the customer to a one-on-one scenario wherever possible. This will remove him from the more public areas where his poisonous attitude can adversely affect not only your staff but other clients as well.

Anne Melnyk, Red Path Coaching:

You are in the grips of a very thorny dilemma! On the one hand, it is vitally important to demonstrate respect and support for your employees in order to maintain a happy, productive and stable workforce. On the other hand, the decision to fire a disruptive client is a last resort that can be even more costly than the 15% of revenue that he generates.

There is also the accompanying risk of sending an angry and possibly even vindictive client out into the marketplace. A retailer friend of mine refers to those disgruntled loose cannons as “terrorists.” Do you remember hearing about the disgruntled Starbucks customer who took out full-page ads in major newspapers a number of years ago because he was dissatisfied with how they responded to a customer-service problem? No company needs that.

Before I would recommend that one of my clients fire a customer, I would advise them to ensure they have exhausted all other strategies. Have you considered the advantages of making friends with him? If he wants to feel special, make him feel special. Thank him for his business, invite him in for a tour and help him to get to know your staff personally. Help him to appreciate how committed your staff are to helping him, and invite him to workshops or business presentations that might benefit to him. If you take the time to find out about some of the challenges he faces in his business and help him overcome them, you may end up helping not only your customer but yourself and your staff as well.

And while you’re busy placating your customer, don’t forget to keep your staff informed about what you’re doing on their behalf, and perhaps giving them the training and support they need to develop skills in dealing with difficult people

Edmond Mellina, TRANSITUS Inc.:

This is a dilemma most of us face as we build our companies. For sure, 15% constitutes a sizable chunk of your company’s revenue, and timely payments are extremely valuable in term of cash flow. However, revenue and cash flow are just part of the equation. What about the costs?

First, there is a direct financial cost, i.e., lower margins due to your customer’s constant haggling for discounts, as well as the special treatment he gets.

Second, there is a “soft” cost, and this is more concerning to me. Since you’ve let this customer be very rude with your employees, they must feel you don’t really care about them. The consequence: less trust in you as their leader. I would also bet that their motivation and engagement levels are down, and that they feel less loyalty towards you and your company.

Why is that worrisome? According to the latest PROFIT HOT 50 report, 88% of the HOT 50 companies mentioned both “the ability to attract good staff” and “the ability to retain good staff” as critical to building their business. I don’t know about you, but I don’t feel like working for a boss who lets customers be rude with employees. So, by not acting, you are shooting yourself in the foot.

Finally, there is a negative impact on your own effectiveness as an entrepreneur: you are wasting valuable time and energy, both mental and emotional, thinking about and dealing with the situation. You would be better off investing this in your good customers, and in further developing the business.

Here are my recommendations. If the damage to your people is already high, then bite the bullet: fire the customer and explain to your employees why you did it. Your action will send the strong message that you really care about them, that money is not everything and that customers won’t come first if they don’t respect fundamental values like mutual respect. You will experience short-term revenue pain, but the longer-term gains should more than compensate for it.

If the damage is not yet significant, then work on securing new business to compensate for the 15% of revenue. Then fire the bad customer, and make sure to explain your decision to the employees.

Harvey Forester:

As a previous customer-service-oriented small business owner, I can relate to your problem. I have had customers as you described. I found it to be a balancing act. Part of it, of course, was how desperate I was for the income.

At the beginning, I simply put up with it and adjusted my mindset. I found that some customers, after receiving positive customer service for a while, totally stopped being difficult and became regular, long-term, hassle-free customers. The degree of harassment of my employees would be a deciding factor regardless. Firing a nasty customer for the benefit of employees can go a long ways towards strong commitment and appreciation from your employees, as long as you ensure they understand that they need to put up with a certain amount of that kind of customer, to a degree.

I did have a couple of customers that never stopped harassment, no matter how well they were served. I eventually sent them packing. Some people simply have that mindset and will harass and complain no matter what you do. My way of letting those people go would be to say to them, “This is what you get from us and these are our prices. If that doesn’t satisfy you, perhaps you should find another supplier that will provide you with what you are looking for.” At that point, they will either go away or simply become more accepting and less harassing.

Jerry Domenico:

Customers who pay on time are too important to lose. If your employees know in advance that this is his management style, they can be taught to anticipate it and not react to it.

Since his 15% is important to you, maybe you should invite him to be a company advisor. If you and all your employees actually hate doing business with this person, then you must immediately make the decision to grow your business by the same percentage by acquiring new clients. Then you can have the luxury and the pleasure of firing him.

I opt for keeping him. He is entitled, and should as a good businessman try to get the good prices. You should expect this and prepare for it. You must know your value and must choose your pricing strategy. Business is business.

Alberto Zorik:

Firing a big customer? Are you crazy?

Before one gets emotional, I believe the first question you should ask yourself is how much money you’re making from this customer. An objective evaluation of the resources used to serve him compared to all your other customers is a better indication than the fact that he is rude to your employees.

If you find that he’s a very profitable customer, you should address the issue internally. Train your sales and operations staff in assertiveness and self-confidence, teaching them not to take things personally and showing them ways to deal with you customers’reactions positively. Talk to your customer, letting him know that you appreciate his business but that treating your staff nicely would get him royal treatment.

If you find that this customer is less profitable than your others, you should ask yourself what is in the product or service that he demands that you could tailor or customize to meet his specific demands, including for discounts, and improve your profits at the same time. Certainly there must be things in your offer that the customer doesn’t need or prefers to be packaged differently. Maybe instead of taking an order from him every month, you should give him the discount he is looking for but cut the hassle in half by forcing him to order twice the volume every two months!

If you find that there’s nothing you can change or modify, before you fire him you should ask yourself and your sales reps where you plan to pick up that 15% of revenue and X% of profit once the customer is gone.

Once you’ve answered these questions objectively and with certainty, I wouldn’t hesitate: I’d fire him right away.

Garth Schmalenberg, HBI:

When I was running an IT consulting group, I had a similar experience, although it was between two individuals in the same company. One frequently haggled over contract terms and prices, while the other, who was calling my team for support, was extremely rude, frequently yelled on the phone and used inappropriate language.

What I did not do was fire the rude customer. Instead, I gave my team members permission to hang up on him, first providing a kind warning that they were about to do so if the language or volume was not held in check. They were advised to simply set the rules of engagement by saying something like, “I’ll be happy to discuss the issue further when you have calmed down.” If he wouldn’t calm down, they simply said, “I’m hanging up now. Please call back when you have calmed down.” Then they hung up.

The first couple of times, the client called back and was even more angry and upset. They were told to expect that. After a few tries, when the client realized they were serious and had management’s support, he did calm down. He then called back and they were able to complete the call.

There are a few things required:

  • Resilience and empathy from your team to understand that the customer has simply not learned appropriate ways of dealing with other people and may have frustrations that are beyond his capacity at that moment.
  • Empowerment. No one deserves to be abused. Your staff need to know you will stand behind them when they take appropriate action.
  • Letting the client know ahead of time that this change in response will happen.
  • An appropriate response so your team still treats the customer respectfully and fairly.

As for the haggling over price, there are a number of ways you can look at it:

  • As an opportunity to review your pricing. Perhaps it really does need to be checked. In my situation, it turned out my prices were becoming obsolete due to a changing competitive environment and I hadn’t seen it coming soon enough. Can you offer the same discount to all your customers? Are there other types of products or services you can offer your customer at a price he is happier with? Sometimes just giving the choice will solve the problem.
  • As an expression of what others are feeling. Perhaps many other customers feel the same way, but they’re just less vocal.
  • As a matter of culture. I’ve worked with executives from many cultures, and some just don’t feel good unless they’ve done a good day of bargaining or until they’ve applied as much pressure as they can. In some cases, it’s really serious too. They feel as though you’ve slapped them in the face when you say no to a discount. Helping them to feel that they’ve done a great job of bargaining may appease that when you aren’t willing to bargain more. Also, sometimes they regard it as their job to ask and to be dramatic in the process. It may be just for effect and part of the game, and they might not feel as bad as they appear when you don’t give the discount. It’s up to you to learn more about your customer.
  • A better solution might be formal training for your staff in resilience or negotiation. How you think about your customer affects your feelings when dealing with him. For example, the words “always haggles” indicate 100% of your conversations are haggling. That would be a real downer to most people. Look for as many instances as possible when you are talking with your customer when he is not haggling and make a note of them. You may notice he only haggles when you’re negotiating prices. There may be some topics that make your client feel happy about himself in the world. If you talk about them, he may focus less on getting a good deal and more on being a good person.

It’s possible you do have the wrong customer and you’d both be happier if he went elsewhere. In that case, you may want to fire him. However, I recommend taking a long, hard look at yourself first.

For his answer, Garth Schmalenberg will receive a copy of Success Built to Last by Jerry Porras, Stewart Emery and Mark Thompson.

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Originally appeared on PROFITguide.com