Thursday, February 01, 2007

Firing Clients: Follow-Up

A few people have called and emailed about this post. It was part rant and part lesson. The rant is what it is. But the lesson is this: Many of you have clients that make you very little money, but cost you a great deal of time and energy. Dump them! You are not Ma Bell.

Remember Paretos' principle: The 80/20 Rule. You want to focus on the 20% of your clients that make you 80% of your money. You don't want to burn up 80% of your tech's time with the lowest paying 20%.

We are still seeing that Dial-up is hugely profitable - moreso than DSL by far. Most margins on DSL are $10 max. Unless that client is buying other services from you, if it is problematic -- sell that account to the ILEC. (We pay $100 per each BellSouth FastAccess Biz account).

Life is short! Have some fun... Because your customer can feel that fun... And people want to associate with fun people - not stressed out, cranky cynics!


Clint Ricker said...

While I do agree with the jist of what you are saying, and have both in my own business and past businesses that I've worked for done that, I think that, for a lot of your clients, they should examine the issue closely before dropping customers. If there is a customer who has that strong of a relationship to you and doesn't buy anything, that sometimes is an indication of either lack of competitiveness OR lack of any real value add.

There are, of course, clients who basically attempt to get the value-add (say, expert advice) without actually buying the accompanying product. But, there are also clients who look to vendors to buy, but, in the end, go with someone who has a viable value proposition. In my own experience in the industry, there are too many independents who rely too heavily on the myth of small business and "independent isp" (or whatever) and don't aggressively examine their own value proposition to ensure that their customer base is loyal because of economic (long-term) as opposed to personal relationships (these tend to fade quickly).

If people aren't doing business with you in a capitalistic environment, it is either because they don't know you, or because they do know you :). If people who do know you don't do business with you, it should start some self-analysis and competitive market analysis. Often, it is just pointless clients--but, some self-examination is in order to understand "why" they have asked for dozens of quotes and never ordered.

Peter Radizeski said...

But is it always about being the lowest price?? I am not usually the lowest bid in telecom. (Direct Ae's and rebillers usually beat my rate). But I am the one stop shop - I help with billing disputes, technical problems, and usually know your network. Plus all the value add of my knowledge and advice. .... Maybe my model has to change.

Clint Ricker said...

I definitely agree that it doesn't always have to do with price--value is a much better competitor than price. But, take the independent ISP's for example--most of whom claim to "compete on value" while not actually offering a better value. If your price is higher, fine--but, you do have to 1. actually have a value offering to justify it and 2. effectively communicate the value offering to the customer. A lot of companies we both know do neither, but still blame the customer rather than their own inneffectiveness.

Anonymous said...

There are nice ways to rid yourself of clients that are bad for your business, and you can do it with a smile without causing lots of damage to your business. There is an article that I found online once that outlines this pretty well. I just google’d it and here is the url:

Basically, the jist of the article is that (of course) you want to avoid firing customers if there is another course of action that can be taken that will make them both happy and profitable for your business. Any business owner that has been in business for quite a while will inevitably find them in a situation where they have to show a customer to the door. There are lines that sometimes customers cross. Sometimes it is very obvious, like cursing at your employees (something I do not tolerate). Even in cases like that (which are very rare) I would personally try to find out why a customer would behave that way before pulling the trigger on them. I like to believe that every misunderstanding can be rectified.

However, I do agree with Peter that there are those few clients that will never be happy, nor profitable for your business. This is not a blanket labeling of customers that demand good support as some hosting company owners have suggested. On the contrary, I think there are several factors that can be in place within an Internet company that can TRAIN CUSTOMERS to be difficult.

Some examples:

1. Long hold times on the telephone
2. Poor call tree design
3. Underpricing services
4. Giving unrealistic deadlines or expectations to customers
5. Allowing customers to continue to believe or have unrealistic expectations

The last one is a biggie. Support and sales staff has to be able to say “no” to a customer when their demands exceed your services. Good customer support means that you will go to the nth degree to meet their needs and help them out (naturally), but at the same time your staff needs to know when to say “when”.

Since I have been in business for ten years and we started out serving residential customers (something I no longer do), I could tell you lots of cautionary tales where people would call their ISP for software-related problems that had absolutely nothing to do with their Internet connection. In that same vein, I once had an employee that strived to help customers at all costs. He would basically try to help them with whatever issue they would bring to him. This was something that management at the time (me) should have stopped. But at the time I believed he was actually trying his best to make all customers happy, which is something I encouraged. The sad reality is that he was one of my least profitable employees, and in fact he had the most customer complaints. They weren’t nasty complaints, mind you. But they would be the kind of complaints that would go something like this: “He is a great guy, and he has tried really hard to help me, but I can’t understand why this xyz software isn’t working, and he helped set it up”. Those calls would go to me, and then I would be pretty upset that so much time was wasted trying to help someone with software that we are designed to be able to support. It also meant that we were incurring more liability than we should have. Thankfully those sorts of things no longer happen, but I STRONGLY disagree with companies that make blanket statements like “you should never fire a customer”. Perhaps they are taking this subject too literally. Maybe the term “fire” is what gets under their skin.

The article I mentioned above speaks of three methods to fire customers:
• The "TWEP" method - This stands for "Terminate With Extreme Prejudice."
• The "parking meter method" - This method simply means as long as you feed the meter you can park here. If you want a package delivered over night it usually costs more.
• The "Dear John" letter - A formal letter outlining that you are sorry that you can no longer provide the service and or procedures that they require and when the current project is completed you would prefer that they obtain future services elsewhere. It shouldn't be an angry letter. Keep it strictly business. It's not personal it's business. It's profit and loss. Attorneys use this method to let clients know that continuing to pursue a case they can't win does no benefit to anyone.
I think that companies that are against firing customers assume that we are treating all with the first TWEP method. That is a method that I simply do not do, and I don’t think any company should do that. The other two; the “parking meter method”, and the “dear john letter”, work well. Those should be last resorts, but they best illustrate how to handle difficult customers. As I said above, setting you fees too low can be a problem, so the parking meter method could be put into effect by simply charging priority rates for certain levels of service.

Hope that helps.

John McKown, President
Delaware.Net, Inc.