When is it time to let a customer go?

Problem clients can sometimes cause more trouble than they’re worth

Yvonne Bianchi, owner of CCg Inc., said sometimes companies need to sever ties with clients that don’t match their customer profile, and use that time previously invested to go get bigger, better clients.

Dan Hiestand
   When Yvonne Bianchi, president of CCg Inc. in Bellingham, first started her business, she couldn’t afford to be choosy when it came to which customers she worked with. Now, nearly 15 years later, things are different.
   “We pretty much do not work with small retail businesses because our overhead at this point is just not a good fit for them,” said Bianchi of her marketing, advertising, design and public relations company. “Their budgets are generally pretty small, and we are very up front with them about that. We’d rather see their dollars go into advertising themselves than spending it with us to tell them how to advertise.”
   Instead, her company likes to work with a smaller number of larger, corporate clients, she said.
   “We have a financial institution. We have a car dealer and some attorneys,” she said. “It’s really broad-based.”
   The formula seems to be working, as sales were around $1 million in 2006 for her business, which has a staff of seven.
   “It’s continued to grow,” she said. Working with specific clients and excluding others has worked for her company, she said. It hasn’t always been this way, as Bianchi said she has worked with customers who were less than ideal when her business was new. Making the difficult decision to turn down clients who didn’t fit her company was something she learned along the way.
   “I think that most successful businesses do a pretty good job of separating good (customers) from the not-so-good,” she said. “I really do, otherwise I don’t think you could stay in business if all you’re doing is working with difficult, problem customers.”
   The decision to refuse to provide service — and perhaps even ‘fire’ a customer — is a tough one. However, for companies that can afford to make this break, the potential benefits are appealing.

A mutual understanding
   Bianchi said her company works closely with customers, and this relationship requires a mutual understanding.
   “What we do for a customer really requires that we work in partnership with them because we have to understand their business in order to promote them,” she said. “They have to allow us to do our job, and in order for those two things to happen, we have to get to know each other pretty well. The clients we work with now do have that appreciation and understanding and that is why they are successful relationships.”
   If the customer does not understand this relationship, things may go south quickly, and sometimes, the relationship can be damaged beyond repair. Perhaps the customer is too hands on, or they are trying to nickel-and-dime the company to death. Most of these issues come from the parties not having a clear understanding of each other, Bianchi said. So, are there times when customers should be let go?
   “Yes,” Bianchi said. “Without a doubt.”
   This is easier said then done, especially if you are a new business, she said.
   “When you are starting out as a new business, you typically will take anyone as a customer or a client because you’re hungry,” she said. “You don’t know what’s going to go on. You’ll take people that later on in your business life you wouldn’t dream of working with, just out of fear. It’s a process. As your business evolves, it can afford to not have to work with difficult clients. But that takes a while.”
   Michael Elmer, co-owner of Michael’s Books, knows this well.
   “I’m still learning (how to let go of customers),” said Elmer. “Customers know what’s fair, and they know when they are not being fair.”

The pros and cons of letting go of customers
   Bad customers are not just bad for businesses, said Elmer.
   “Customers who poison an environment poison it for the other customers, too,” he said. “There is an old saying: You feed the dog you want to live. It’s important for customers to realize that they have to feed the businesses they want to do well for them to survive.”
   For a business to survive, it has to be profitable, Bianchi said.
   “If you’re not making a profit off of your customers then you’re not going to have a business for very long,” she said. Part of that profitability comes from choosing appropriate customers from the beginning.
   “I would say that we started qualifying clients probably a couple of years into it,” Bianchi said. “We started by having an ‘A,’ ‘B,’ and ‘C’ client list, with ‘As’ being awesome clients, the ‘Bs’ being the majority of our clients and the ‘Cs’ being the ones that we would work with because we were too afraid to let them go. As time went on, we started slicing from the bottom. At this point in my business stage, we only have ‘A’ clients because we just simply won’t do anybody else because we don’t have to, which is nice.”
   John Merrill, president of Gateway Controls, Inc., said qualifying customers is the optimal solution, as opposed to firing them.
   “I think it’s important that we understand what our customers want in the beginning, and that we don’t just chase a job for the privilege of getting the job — particularly if you just want to rack up a little bit of extra work. The trick in my book, is to make sure you and the customer understand each other from the beginning,” Merrill said.
   The benefits of letting go of bad customers far outweigh the negatives in most cases, Bianchi said.
   “The benefits are huge. Bad customers are an opportunity coster,” she said. “The time they take to manage prevents you from pursuing better clients. They drain your energy. They drain the entire office’s energy. They lower self-esteem, and they reduce time that is better used to pursue better clients.”
   For new businesses, firing clients may not be the wisest move.
   “Give it some time. Get comfortable with what you’re doing, and learn. A new business owner has to look at their new business as a learning experience,” she said. “I really think you can’t get good at (filtering customers) until you’ve been through the fire a few times.”
   If a company must let go of a customer, use good communication, Bianchi said.
   “We really lay out some specific ground rules early on, and tell them our approach and how we do things,” she said. “Be as specific as possible at the outset and then if you start experiencing problems with them not being able to deal with what you explained, you just have to stop and say, ‘We’re concerned that this isn’t moving forward in the way that either of us hoped it would, and perhaps it would be better now to part ways. What do you think?’”
   This upfront style of communication is important, Merrill said. If businesses must let clients go, do it with integrity.
   “Tell them the truth,” Merrill said. “If you are honest with them and tell them exactly what is going on, my experience has been that 90 percent of the time what was perceived as a problem is readily fixed. Be straight with your customer, and they’ll be straight with you.”
   Businesses are well served to avoid firing customers when tensions are running high, said Bianchi.
   “Just back off, walk away and chill out. Formulate your communication,” she said. “And keep lots of records. That’s one good reason e-mail is such a good way to communicate.”
   If bad customers change, should companies accept them back?
   “Sure. And again it’s communication,” she said. “Again, you just set down those ground rules.”
   It’s important for businesses to remember that the old adage that the customer is always right is simply not true, Bianchi said.
   “There is a line that can be crossed,” she said. “You want to make your customers happy. You want them to feel good about you. But there are some people who simply will not be pleased. It doesn’t matter what you do, unless they really feel like they’ve got you under their thumb.”

Tips for spotting a ‘red-flag’ client

    Red-flag clients give a lot of hints to prospective companies, said Yvonne Bianchi, president of CCg Inc. Experience can help detect them earlier, Bianchi said.
   “The longer you’re in business, the easier it is to spot a bad client,” she said. “We call them red-flag clients.”
   • Red flag No. 1: Limited appreciation of your expertise
   “A good client is a good fit with your talents and your skills and your experience. If they don’t appreciate those things that you are bringing to the table, then it’s not going to be a good fit,” Bianchi said. “All of a sudden, these people think that their skills are really pretty close to ours. And they’re not.”
   • Red flag No. 2: Negotiation hassles
   Sometimes, clients try to squeeze water out of a stone, and get more than what they paid for. This is another warning sign, Bianchi said.
   “Negotiation is an integral part of business. But it should be realistic. It should be done in a friendly way, and it needs to be fair,” she said.
   Customers shouldn’t approach the business thinking that they are going to always spend the least amount of money, Bianchi said.
   “That doesn’t make for the best relationship,” she said. “They inevitably will whine at every bill they get, even though they have signed off on an estimate that supports each bill.”
   • Red flag No. 3: Customer-education excesses
   Bianchi said the lines of communication should be open between clients and businesses — to a point.
   “You should not have to educate your clients or your customers — at least not beyond a certain point,” Bianchi said.
   She said sometimes her clients have been known to want free schooling in how to create artwork, or how to manufacture publicity campaigns.
   “Because they don’t know anything about it, they want to learn — and yet that takes a lot of time,” she said. “It’s better to work — for us anyway — with clients that already understand a bit about what it is we do so that we don’t have to explain continually why it is we are doing something a certain way.”
   • Red flag No. 4: R.E.S.P.E.C.T.
   Businesses deserve respect for what they do, and if clients don’t make that connection, perhaps they are not a good fit.
   “Mutual respect is really key. I think that is the downfall of most bad-client/bad-customer relationships,” Bianchi said. “Every business that does business is valid — if they have a valid service or product that they provide — and they deserve respect for that.”

 

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