When to fire customers? 5 tips to delist prospects that are not profitable to your business

Written by on August 7, 2018

Until recently, I thought that more customers always meant more profit. I was convinced that customers were only to be attracted, onboarded, and served. The idea that businesses should fire customers was alien to me until I heard Cindy Eckhart, CEO of Sprout Pharmaceuticals, talk about it in one of her interviews. But even after I heard the idea, it sounded absurd; it didn’t fit my worldview of how businesses perceive customers.

I mean, what business in their sane minds invests thousands of dollars in marketing and advertising to get customers to buy their products and get rid of them anyway?

It really got me thinking – is firing customers a standard business practice? If so, why and when should businesses fire them? And what types of customers should they get rid of? How should they go about it?

I was so intrigued by these questions that I decided to dig deeper and talk to a few experts to get their thoughts on it. What I found during my research, and interaction with the experts, has opened new paradigms in my understanding of the business world. I have come to understand that the practice of firing customers is actually the other side of the coin of growing business. It’s an underbelly sub-topic that rarely gets talked about because of how controversial it sounds.

The answers to a few questions seemed obvious and sensible when I heard them. For example, I discovered that it is a fairly common practice for businesses to fire customers when they start becoming liabilities instead of assets. The way I see it, it’s like how we end high-maintenance friendships/relationships because it liberates us from the emotional baggage.

But other answers that I found require more explaining and deliberations. So I put together this blog post that will help you (if you, like me, were also ignorant about this topic) broaden your understanding of the topic.

Enjoy the article and share your ideas or experiences in the comments at the end of the article. So let’s get into the details of who you should fire and how to go about doing it.

 

1. Fire the bad company

If you have clients that are involved in illegal, immoral, and unethical business practices, you should immediately sever your ties and distance yourself from them. Bad business is contagious and it eventually leads to a doomsday justice. These companies can drag your business into the dark dungeons of regret and obscurity if you maintain your ties with them for the sake of making money.

Remember Martin Shkreli? The “Pharma Bro” initially became infamous for jacking up the price of a life-saving drug for HIV/AIDS patients from $13.50 to $750 a pill. His company blatantly refused the lower the prices that they had raised for no just reason. He was involved in a string of other unethical practices (harassing a woman journalist in Twitter, announcing $5000 bounty for Hillary Clinton’s hair strand, among others) that caused at least one partner company to sever ties with Shkreli and his business. A few months later after the incidents, Shkreli was arrested and sentenced to seven years in prison for his involvement in a case of securities fraud.

It is a fairly common practice for businesses to fire customers when they start becoming liabilities instead of assets. Click To Tweet

If you have customers who pose danger to the community, evade taxes, or cover-up workplace lawsuits, immediately withdraw your work contracts with them. Kick out businesses that bribe politicians to work the system or those who exploit sweatshop workshops to jack up the prices for their luxury apparel brand. Cut ties with companies who back out on your mutually-agreed terms or want to violate your SLAs. If they are involved in such malpractices, chances are they can repeat similar misdeeds with you.

The world is already in short supply of good deeds; you shouldn’t fuel the fire that spreads more evil in the world. Yes, it can be disheartening to see a good chunk of your revenue being flushed down the toilet when you stop doing business with the rich outlaws, but your other customers will respect that and tell the world about your good standing.

How to do it: Be upfront about it and say that your vision doesn’t align with theirs.

 

2. Get rid of the mean bunch

Running a business for profit doesn’t mean you have to deal with every rude customer who treats your staff like a doormat. Unless you run a casino where drunk and abusive customers account for a significant chunk of revenue, you shouldn’t deal with clients that are constantly demeaning to your business.

Cut cords with customers that are culturally-insensitive to your staff, uncivil in their etiquettes, who use expletives in their communication, or frequently threaten to switch companies at the drop of a hat. A business is like family and you fight tooth and nail to defend the respect and integrity of your family even if it means letting go of a few mean cash cows.

The customer may always be right, but not every customer is right for you.
– Anthony Tjan, Author and entrepreneur

These are entitled customers who think that they can squeeze out anything from you as long as they are paying. They might use manipulation in their negotiation techniques (e.g., XYZ company has quoted a 40% lower rate on a similar plan. We are thinking of moving our 10-seat account to them if you can’t match their pricing.) If they really think they are so spoilt for choices, let them go for it while you focus on your most valuable customers. This will help you boost your employee morale and motivate your customer support to bring out their best.

How to fire them: Thank them for considering your business and communicate the reasons why you think your business is not the right fit for their requirements.

 

3. Kick out the freeloaders

Sometimes, the sales cycles in some companies are longer than in other companies, especially in the B2B context. However, there’s a difference between customers who need a longer evaluation time and prospects on a never-ending trialing period. The latter group of customers are like the guests who overstay at your house, won’t apologize on their kids’ behalf for messing up your Tibetan rug, and wipe your refrigerator clean of groceries and expensive bottles of wine. They’re more trouble than they’re worth, and so, you have to muster up the courage to show them the exit door.

Unless your business is okay with people latching on to your products for free or explicitly invites buyers to subscribe to a forever free plan (like Freshchat’s Sprout plan which is great for a small business), you should evict the free tenants to make room for more worthwhile customers. Many of these freeloaders will also insist on having features and services that you don’t offer or don’t go along with your product offering. They pretend to cling on to the free or trial plan in the guise of “waiting for the right feature” to upgrade to.

How to fire them: Shoot straight – tell them you don’t want to give them free lunch forever.

 

4. Dismiss the low-paying base

Return on investment (ROI) is the absolute most important metric for sustenance for any business. But if you have customers that don’t scale with time, maybe it’s time to call it quits with them. And it’s not about them not contributing to your growth as much as it is about your business not being able to enrich theirs. They might just be sapping your team’s energy for their minuscule requirements instead of giving you tangible gains.

It is an old business adage: About 20 percent of your customers produce 80 percent of your sales.
– Perry Marshall, Sales Expert, CEO and Founder

Do an annual audit for the lower base of your paying customers to see how much profit you are making out of them versus how much investment they are getting out of you. If a company has stayed with you for a long period of time for a bare minimum profit, it is likely that they are enjoying the standard perks that cost more – not only in monetary terms – than their purchase amount.

They are essentially treating you like a bank using your service at cut-rate prices, which hurt you more than it’s helping you stay in business. It’s good to create a brand stickiness for your business, but not at the cost of repeated loss.

How to do it: Have an open discussion to see why they are stuck in the same situation and if there is anything you can do to help them grow. Or, tell them you’re pruning your customer base for more control over your processes.

 

5. Pull the plug on solo sore points

Sometimes, you don’t want to say “no” to certain customers because they add weight to your business portfolio, but have very specific use cases. Fledgling companies are especially vulnerable – in an aim to increase their market share – to take in clients that have unique proprietary requirements which many times leads them to revise their business processes to revolve around their clients’ exclusive needs.

They might have a dozen of compliance standards you can’t catch up with, or they might require you to create a one-off, on-prem solution because their industry regulations require them to store data in local servers. In effect, you are putting in more money and labor on them than the profit you get out of them. If a few of your clients require special attention, causing capacity constraint to other client pool, and chew up your profit, it’s time to divest them.

An organization is a set of relationships that are persistent over time. - Kevin Kelly, founding executive editor, Wired magazine Click To Tweet

Take for example a customer who might guarantee a monthly $10,000 revenue for you, but they might have special requirements like hosting data on the Linode platform. You might build a team to host your services on Linode assuming that you would please this company and expect other clients with similar requirements to join the club. But what if this company doesn’t scale? Or worst, they go out of business while no other clients want to join the Linode club? They might end up being a liability if they have no plans to scale their growth over the years.

It might be difficult to do this especially if the customer is a big client who gives you good revenue, but it’s still worth it because it will enable you to do justice to other customers who need your attention too. In a recent article, Adam Robinson narrates a personal anecdote of how being hyperfocus on a single big client led him to the path of burning cash instead of churning profit. After all, you should rely on a few clients to keep your business running. Therefore, it’s better to tell off the elephant in the room to find a bigger accommodation for them.

How to do it: You don’t have to necessarily fire them. Communicate your concerns with them. If they are among your true customers, they will understand your pain points and be open to making win-win arrangements.

 

 

Say no to unfulfilling ties

There are few occasions when businesses should end relationships with customers; for ethical reasons, for increased employee morale and confidence, to mitigate losses, and to manage your resources well. Take a step back and see if you can identify one or more of your clients from the above-mentioned situations. Cut them loose if it means good business for you in the long run or being able to pay closer attention to your best clients.

Business is not always about making profits; it’s also about building healthy relationships with the right base of customers you can surround yourself with while staying profitable. There is a world of difference between delighting customers who matter to you and delisting customers who cost you a lot in terms of money, morale, and mental peace. Cutting unprofitable ties loose is part of being professional and is mutually beneficial for everyone in the long-term.

Sometimes, it’s important to say goodbye (which, by the way, means ‘God be with you!’) for your own sanity and peace of mind.

(Cover illustration and images by Karthikeyan Ganesh)

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