Firing a problematic client: It's often both a fantastical and frightful notion for the small-business owner. But it may also be a pretty smart move, especially in today's economy. "There's an emotional tendency to believe that all your clients are worth something," says Matt Sarkees, assistant professor of marketing at Penn State Great Valley School of Graduate Professional Studies." And it's very hard emotionally and psychologically to believe there's a set of clients that you really should not have a relationship with."
After all, bad clients may lead to all kinds of trouble, like low employee morale and the inability to adequately service good clients and find more profitable accounts. Here are five kinds of customers you should consider setting free:
The unprofitable: Many small-business owners don't do the analysis to find out which clients fall into this group. "Most get so busy and overwhelmed by short-term problems they don't really think strategically," says Gary Harpst, founder of the strategy execution program Six Disciplines. "It's not complex to analyze this, and when many organizations look at it they find 80 percent of their business probably comes from less than half their clients."
One caveat is that some unprofitable clients offer significant benefits. Having their high-profile name on your roster could help you nab other business. Angie Mohr, author of the Numbers 101 for Small Business series, offers another example: "If it's the president of the local real estate association, even if you're not getting a lot of money out of [the company], if they're going to refer people from the association, [the account] is definitely worth keeping," she says.
The high-maintenance, complaining customers: The inappropriate time requirements of these folks are ridiculous. Ross Lasley had a client at a former Web development company that was always late with materials. "Their failure to plan and execute in their minds equated to an emergency for me," says Lasley, who now runs a consultancy called the Internet Educator. "They wanted stuff done much more rapidly than was reasonable." The customer, who brought in about a third of the business, also objected to every invoice. Though Lasley says he was "desperately afraid" to terminate the client, he finally did so about four years after taking the account.
The consistently late payers: "If people are not paying you in a timely manner, you are now both their provider and their banker, and that's the most expensive thing in the world because cash is king," says Tom O'Malia, director of the Lloyd Greif Center for Entrepreneurial Studies at the University of Southern California. Chasing down late receivables also burns up valuable time.
The abusers: These mean and disrespectful customers infuse toxicity into the workplace, and saying goodbye may be the only way to protect your team. James Siminoff regularly dealt with ranting executives who ran a call center when he worked at a former telecom company. "To say they exploded would put it mildly," he says. The client accounted for 30 percent of revenues at a new division of the telecom, but when the call center didn't pay a bill about a year into the relationship, Siminoff's firm sent a disconnect notice.
"It was one of the toughest business decisions we ever had to make," says Siminoff, now chief executive officer of PhoneTag, a voicemail-to-text service. "If your customer is not being fair, it's how far are you going to let that customer go trampling on your people before you say, 'This can't happen'?"
The misaligned: Bad behavior isn't at play here; rather, the provider has either shifted its strategic focus or mistakenly taken on clients outside its target market. "When you have relationships that don't really focus on who you are and what you're trying to make your brand stand for, they weaken your company," Harpst says. "I'm an advocate of cleaning those things up whenever you find them."
Ultimately, you may attempt to salvage the troubled relationship. If that doesn't work and it's time to part ways, be professional and do it in person. "Maybe in that last moment you may find an opportunity to work out a better relationship where the value is more mutual," Sarkees says. "I also believe it's a simple act of respecting your customer...and I think it helps in terms of mitigating negative word of mouth."
When Lasley told his former Web development client he wanted to disengage—after many previous conversations about the problems—the CEO tossed enticements like higher rates and money in advance. "The hardest part about the actual sitting down was sticking to my guns and saying, 'This is a decision I have made; it is done,'" Lasley says. "I said, 'I appreciate the points you're making, but there's nothing you can do to change that.' I needed to repeat that 10 times before the guy believed me." About 60 days later, Lasley picked up a job that was twice the size.