Many in today’s business world are tempted to believe that every customer is a good customer, and that every sale is a good sale. Unfortunately, there are some customers that are nothing but bad for your business. Whether they’re looking for handouts, commandeering too much time, disrupting the regular flow of business, or worst case scenario, are a litigation risk, it is just as important to identify the customers you don’t want as well as the customers you do want.
In a popular, paraphrased quote, the Dalai Lama says “Your enemy can be your best teacher.” In the case of business, it can be helpful to identify the customers who you wish would take their business to your competitors – the customers who are unprofitable or who are too demanding. Identifying these undesirable customers can help you to avoid doing business with them in the first place, rather than facing the sticky situation of ending an established relationship.
In the long run, a business’ most valuable resource is time, and the easiest way to identify an unprofitable customer is to weigh up the time they demand and the profit that they bring in. Customers who demand more time than they are worth are customers that are hurting your business.
Identifying these unprofitable customers can be relatively simple, and there are certain behaviors that should serve as warning signs:
- Involved in a lot of litigation
- Looking for freebies
- Focusing on price rather than results
- Unrealistic expectations
- Not paying on-time
Though it goes against the grain for most to turn down a sale, or to end an established client relationship, unprofitable customers consume more time and resources than they pay for and this has a direct impact on the business’s bottom line.
In 2007, Sprint Nextel demonstrated the correct way to deal with these customers, and sent out 1 000 dismissal notices to customers, waiving their termination fees and cutting off their service. These customers were responsible for hundreds of calls per month, often for the same issue. Other companies such as TXU, an energy provider in Texas, implemented a similar strategy, disconnecting non-paying customers and offering perks to those who paid on time. Coupled with expensive reconnect fees, this allowed them to drastically reduce their “bad debt” from non-paying customers and even improved productivity once staff no longer had to field calls from bad customers.This is called customer divestment, and is not as uncommon as it once was. Identifying unprofitable customers can increase business profits and improve staff productivity without the facing the struggle of acquiring new customers.
By extension, divesting the business of problem clients can also free up time and resources to focus on profitable clients, which in turn, will benefit the business over time.