by Kirk W. Johnson

Created on: October 29, 2010

In difficult economic times, it seems improbable that "firing" a customer would lead to increasing revenues, but it can.  Think about the customer that repeatedly calls your business to ask about features in a product that you've already explained dozens of times.  There's the customer that insists that your sales staff stops by regularly for visits but only purchases something one out of ten to fifteen visits.  What about the customer that ties up your sales staff by haggling over prices and whether or not they received "what they paid for."  And then there's the customer that makes the big purchase but then your collections staff spends the next six months working to get paid for it.  These customers are great candidates to be fired. 

Just as you would fire an employee that spends more their time being non-productive than they do producing revenue, so should you do with customers.  This is not to say that customers who need hand-holding or extra attention when they first start using your product or service fit in this category.  There is an expected learning curve with any new customer.  What we're talking about here is the five year customer that still acts like the brand new customer by monopolizing your staff's time and resources without generating revenue.

The point of a business is to generate profits and all activities should contribute to that goal.  It shouldn't be assumed that the low volume customers are ones to be fired.  It's entirely possible that they produce the highest per capita return.  Years ago, I was talking to a cab driver who told me that he preferred to take small local runs at $2-$3 per run over the $60 airport run.  Since he was paid a percentage of the fare, that seemed counter-intuitive, but here's why.  He explained that he could fit dozens of local runs into the time it took to take the one airport run and his local runs were all revenue generating (plus tips) while the airport run would usually be empty on the return or would involve an hour or two wait (non-revenue time) to return from the airport with another fare.  In addition, the customers on the local run would generally add a $1 for the driver on a $3 fare (a 33% tip) versus the $12 tip (20%) on the one airport run.  Ultimately what looked like the smaller payoff generated a much better hourly return.  The driver was producing more revenue by taking more of the lower "cost" customers.

The same is true about your customers.  The time spent giving demonstrations to customers that don't buy, or answering the same questions over and over, haggling over prices, or chasing slow-payers may not be worth the "big payoff".  That could be time spent getting smaller customers who require less resources (lower "cost") ultimately increasing your revenue.  Each customer should be evaluated on the basis of revenue versus expense, not just what their contract is worth.  Those that produce the least net profit (not gross) should be "fired" and left for your competitors.  Let them tie up their staffs chasing your fired customers because then they don't have time to get the ones that generate a higher return for you.

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