If your business is like most, you have some problem customers (See my last post, Firing Customers to Increase Profits) and those customers could be harming your profitability in many ways, the worst of which might be by distracting you from properly serving your best customers.
So before you fire those problem customers, what steps should you take?
The first step is to make sure that you have correctly identified the customers that are hurting your profits (again, see last post and the study by Kaplan—check out the graph!). These customers are ones with which our mutual value equation is off kilter. We use a tool we call Value Mapping to understand the mutual value equation—what we are getting from the relationship and what do our customers think they are getting. When both halves of that equation are low, the customer will likely be in that 5% of customers that cost us 20% of our profits.
The second step is account planning with open communication. Sit down with your problem customers and have an open dialog with them about the difficulties you are having serving them in a mutually beneficial way. Just make your points clearly. Keep their perspective in mind while you are doing it, but still be firm in your communication. Then listen. And as hard as it is, let them vent. Let them be defensive (they probably will be). Don’t argue, just listen. Make a point to write down the things they are saying and points they are making. Even though they are arguing or being overly defensive, they hear you.
If you think the second step was hard, you might not like the third step. Find something in the notes you took that you can make point of “giving” on. Find an adjustment you can make. Make that adjustment publicly with them and make a big deal of it. Major mea culpa. Then expect some changes in their behavior too.
Give them a chance to change, but don’t wait too long. If they have had opportunities to come around and haven’t shown any willingness to do so, you are going to have to hike up your proverbial pants, take a deep breath and confront them. Work on the relationship and transform them into a profitable customer.
You might have to fire them if they are simply a bad customer (especially if they continue to push the ethical or moral boundaries discussed briefly in my last post), but work hard to avoid that. Just don’t ever think that it is out of the realm of possibilities.
And don’t let your problem customers destroy your relationships with your good customers.