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When and How to Fire Your Customers

Sooner or later, most businesses will have to reshape their clientele. Here are some tips for doing it with finesse.
January 19, 2011
URL: http://www.entrepreneur.com/article/217926

Sooner or later, most businesses reshape their clientele for one of two reasons:

  1. On the proactive side, businesses part with low-profit customers to focus on those who deliver greater bottom-line results.
  2. On the reactive side, businesses sever relationships with customers whose demands abuse company policies and damage business profitability and morale.

Either way, parting requires effort and finesse.

Know which customers are vital to your success
The 80/20 rule, known as the Pareto principle and named for the economist who developed what's formally called the law of maldistribution, recognizes that in any group, 80 percent of the results come from 20 percent of the participants. In business, that means 20 percent of customers account for 80 percent of sales, while another 20 percent account for 80 percent of problems.

Your job is to focus on the profitable 20 percent while not getting consumed by the demands of the costly few. To accomplish this balancing act, listen to the discontented so you can right wrongs wherever possible. But for every minute you spend putting out fires, spend four minutes nurturing your most content and profitable customers. Otherwise, you'll tilt your business toward those who may never be entirely happy with your business.

Get proactive: Shift your clientele away from costly customers
Define your best customers -- those who are most satisfied and most profitable -- so you can nurture and attract more just like them. At the same time, define which customers cost your business time and profitability so you can take these steps:

Get reactive (if you have to): Parting ways
Take action if a customer acts abusively to you or your employees, takes advantage of your systems or business, or ignores your payment policies:

After the fact, don't say anything negative about the customer. Instead, define what about the customer was out of sync with your business so you can avoid entering a similar, costly relationship in the future.

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