Time to Fire the Customer?

BobBarker-ThePriceisWrong I wrote a post Sometimes the Customer is Wrong about a customer trying to get service on an iPhone that did not meet the contractual agreements. The Apple Tech tried to help the customer, but the customer did not want to take the steps the tech recommended and ended up walking out.

M3 Sweatt of Satisfy Me wrote a post, Sometimes, you should fire your customer, that reinforces what I wrote. The customer is not always right, or may be more trouble than they are worth and you may find that you are better off without them.

There is the law of diminishing returns. At a certain point, some customers are not worth all the time and energy they take. If 5% of your customers utilize 30% of your time, you may find it more cost effective to no longer work with these customers. You may find it more profitable to suggest there might be someone that can better fulfill their needs.

M3 gives the following example, from an article in BusinessWeek, of a small firm that did fire a customer and was able to increase profits:

Not every client can be your favorite. That’s what Debra Brede, an investment adviser and owner of five-person D.K. Brede Investment Management in Needham, Mass., used to think about one of her most demanding customers. For 20 years, the woman showed up at appointments with bags stuffed with every slip of paper connected with her investments—proxy statements, annual reports, dividend notices—expecting Brede to go over each one with her. Brede did. She wanted to offer good service, and this woman had a $1 million account. That’s a healthy amount for Brede’s company, which has about $1.7 million in revenues each year.

Brede cut the cord with about a dozen of her 650 clients between late 2005 and early 2006, freeing her to devote more time to bringing in new business. Profits rose 25% last year, compared with about 9.5% in each of the past few years.

Even though this was a high money client that took a lot of time, the client did not change her holdings much so the customer paid virtually no fees. Brede suggested the client start paying for the time she were using, and they did not find this to be an acceptable solution. By performing a cost analysis Brede was able to determine that this customer was actually costing her company money, and her company was better off without her business.

If you find that you have customers that utilize a good portion of your time, you need to perform a cost analysis to verify that you are profitable with this customer. Quite frequently we hear “The customer is always right” and I think that statement is still accurate. We just need to ensure that we have correctly identified who our customers actually are.

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4 Responses to “Time to Fire the Customer?”

  1. teeni Says:

    Okay, you are right. The customer is not always right. Unless the customer is ME, that is. LOL.

  2. Thomas Says:

    teeni – I can’t imagine that you would EVER be wrong as a customer. Maybe the saying needs to be amended:
    The customer is always right, especially if the customer is teeni 😉

  3. teeni Says:

    See why I love my bloggy buddies? You are awesome! Thanks for that, Thomas! We all like a little ego massage every so often, I admit it. 🙂 This post at first surprised me because it is hard to imagine letting go of a big money client like that but you really do have to look at the big picture. It was smart that they did a cost analysis.

  4. Thomas Says:

    teeni – I agree that this concept initially seems counter inituitive. But once you look at it from a cost analysis, it actually makes a lot of sense.

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