The 5 Benefits of Turning Away a Bad Customer

Not every customer is a good customer. They could be costing you more than they're worth - and the cost is not always obvious. Consider the benefits and have a think about your most troublesome customers.

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Not all customers are good customers. This may seem a statement of the bleeding obvious, but your worst customers may be far more damaging than you realise. When a small business starts up, any customer is a good customer, but as things pick up and the business grows, it may be time to review who you choose to serve.

A client of mine went to the effort of identifying the gross profit they made from each section of their business (maintenance, parts and projects) and then subtracted from those profits the cost of wages in each section and brought it back to an hourly rate. The bottom line was that certain customers were taking up so much staff time for the income earned, the business was losing money. Those customers also tended to be ‘energy suckers’ as well.

One way of looking at this is ”contribution to overheads”. Is business with that customer positively contributing to your overheads This by the way is not uncommon, I come across it all the time, and it could even be happening in your business.

But if the customer is covering cost of sales, and you don’t have another customer to take their place, then maybe you’re better off with them, than without them. This is a valid way of looking at it, but there is also another way of looking at it.

While you are distracted and disheartened running after these types of customers, you need to consider what you could be doing instead and how much more profitable that would be.

I’ve made a list of the five benefits of declining to continue servicing your worst customers.

1. You make more profit because you free up time and energy (the most important resource of the business owner) to find better customers. It may be a small step back in the short term, but a giant leap forward in the medium to long term. The gap will fill in with better quality customers and you’ll wonder why you didn’t do it years’ ago.
2. The morale of your staff improves. Nobody realises at the time just what a drain these people were until they’re gone. The effect is palpable. The culture improves and your A-players stay with you.
3. Those bad customers go to your competitor and damage your competitor’s business. They in turn become less profitable, experience higher staff turnover, and their service quality suffers, sending their good customers to you (bonus!).
4. The difficult customers get an education in just what bad service looks like, and the best part is, your competitor pays for that education!
5. Some of those customers, especially the ones that refuse to pay enough simply because they didn’t know any better, will return to you having been educated by your competitors and potentially flip from being your worst customers to among your best. Anyone who’s been in business for a while, will have seen this happen.

Now getting rid of a difficult customer isn't always the right solution. Consider trying to find out what it will take to make them happy. If you do figure it out, and turn them into a happy customer, then you have the secret source to retaining their business, and your competitors don't.

Another option is to simply charge them more to cover the additional effort they take to serve. To put it another way, charge more to any customer that wants to pay less.

But If you can't figure out what it's going to take, and you can't close the sale charging them more, they should go. Bad business can be worse than no business. Be picky about which leads you choose to chase. Be firm on price. Sell the benefits, not the cheapness. Have faith that there are customers out there who will appreciate a job done properly and will be happy to pay appropriately.