5 Reasons to Fire a Customer -- Plus 5 Steps to Take Before You Do
Most situations are resolvable, but it's important to know when to go your separate ways.
Is it ever OK to fire a customer? The answer is yes. Sometimes (in rare cases) ending a tricky business relationship is the absolute right thing to do.
This concept is challenging for young companies, especially since most founders have to move heaven and earth to book and retain business. However, when a customer relationship is damaging, it may be time to part ways.
As a startup creates its business plan and develops the company's culture, it anticipates potential product development delays or financial setbacks. But it should also consider the possibility of problematic customer scenarios. When challenges occur — and they will — there should be a process in place to assess the situation and deal with it appropriately.
In matters of character, treatment of others or criminal actions, the question is not whether the company should terminate the customer relationship. It is who will deliver the message, how and when. These circumstances demand action.
- The customer company or its employees are engaged in illegal activity, violate the intent of the law, or behave unethically. Do not do business with a company that you know is breaking the law. Seek legal counsel. It may or may not be your responsibility to share or even comment on the actions of a customer who bends or breaks the rules — that's why you seek the advice of counsel. Misconduct is an excellent reason to walk the other way.
- The customer treats your employees or theirs disrespectfully. Successful companies create a culture of dignity and respect. Your duty to your employees extends to customer interactions. Some behavior — harassment or bullying — is always wrong. Other behaviors may be open to interpretation. Protect your team in environments, client or otherwise, where reasonable people are made uncomfortable.
- The customer demands commodity pricing. Startups succeed based on value-add, not on margins that are razor-thin. Venture capitalists typically do not invest in commodity businesses. They know that selling more units at a lower price doesn't fix the bottom line. You have the choice to continue to work with such clients but proceed with caution.
- The customer doesn't pay the bills. Accounts receivable always indicate when something is out of whack. Maybe the customer is in financial difficulty, is a chronically late payer, or is dissatisfied with your products, services or personnel. Dig into the issue with the customer. Can you reach an agreement that is equitable to both? Cashflow is challenging enough for a new business without financing someone else's company through your receivables.
- The customer is never satisfied. Many perfectionists live in this world. Some of them will be your customers. Learn to recognize the difference between a client who refuses to acknowledge a job well-done and a client who appreciates accomplishments and keeps raising the bar. The first is demoralizing to your team. The second can be a great partner — a rising tide lifts all boats.
Before you fire, do this
Customers can be challenging. If a problematic customer situation has to do with the law, talk to your attorney immediately. Otherwise, before you decide to fire a customer, step back and take these five steps.
- Convene a cross-functional roundtable. Include every person at the company who deals directly with the customer in question. The goal is to reach a decision of whether to fix or fire.
- Allow every team member to vent. Don't be surprised if sales has a different perspective than product development or if customer service doesn't agree with finance. After the complaints are on the table, challenge each person to say one good thing about the customer. If everyone is quiet, you have learned a lot.
- Ask associates to identify how they may have contributed to making the relationship with the customer worse. Sometimes the act of discussing a challenging customer helps uncover ideas that could improve the relationship.
- Is this customer relationship worth keeping? If the answer is yes, or it depends, what are the next steps? Change personnel? Revise terms and services? Reset expectations? Once you have a plan, meet with the customer. Listen to their perspective, and then tune your plan.
- What will it take to terminate the relationship? Young companies typically don't have deep reserves of cash or resources. Before you can afford to end a relationship with a "questionable customer," think through how you will compensate for that loss of revenue. How long will it take to sign up a replacement customer — revenue that is not already in your business plan? Can you reduce expenses, change marketing plans or wait out a contract? Taken from this point of view, your team may recognize that a few uncomfortable conversations with the customer on pricing or timely payments might be worth a try.
"If the world were perfect, it wouldn't be."
Baseball great Yogi Berra had it right. There is no such thing as a perfect customer relationship.
The goal is to set mutual expectations with every customer and deliver on commitments with integrity and respect. That is the basis for business relationships that endure for years. It is also the touchstone for determining that it is time for a customer relationship to end.
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