Real Issues. Real Answers. Firing customers

Firing customers

Firing customers

Firing customers is a big step. But sometimes, customers create situations where it makes the most sense for your company to refuse to sell to them. There are many things a customer can do to land themselves in this situation. Maybe they go out of their way to make you and/or your employees miserable. Maybe they challenge invoices line-by-line and pay late, if they pay at all. Maybe they’ve worked you so hard on price that it simply isn’t cost-effective to continue to serve them. That’s why the topic of this month’s Real Issues survey is about firing customers.

This month’s question came from a Florida dealer who wrote looking for insights on when it makes sense to fire a customer. Clearly, refusing someone’s business is a drastic step. Yet 94% of respondents to our Real Issues survey report that they have experience firing customers. As you’ll see, the reasons are mostly along a continuum from personality to payment. While caution is clearly in order, it’s notable that none of the respondents who shared stories of firing customers expressed any regrets.

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As we do each month, we sent a brief survey to the subscribers who’ve opted in to receive our email communications. A big thank you to the nearly 200 readers who took time to weigh-in on this month’s survey. If you’d like to participate in future Real Issues surveys, just drop me a note at Rick@LBMJournal.com. The issues all come straight from readers—and the reader whose suggestion is selected receives an LBM Journal prize pack (mug, cap, polo shirt and more).

Firing customers

First, we wanted to learn how many of our readers have fired customers in the past. An overwhelming 94% of respondents said yes.

Firing Customers chartNext, we wanted to the reasons readers have for firing customers. As you’ll see, “made unreasonable demands” was the leading issue at 78%, followed by “non-payment issues” (69%) and “not cost-effective” (57%). Of the choices provided, “made employees miserable” and “excessive product returns” were slightly less common (55% and 38%, respectively). Below are responses given by respondents who checked, “other.”

Firing Customers chart 2

“We employ the Pareto Principle (Rule of 20/80), as modified by the Merrifield Consulting Group. The Top ‘A’ group of 10% of customers provide 50% of your profits, and we give these customers our cell phone numbers, and return their calls immediately. The second or ‘B’ group of 10% provides 30% of your sales and profits, and these people get the office phone numbers, and can text us for quick responses. These ‘A’& ‘B’ customers give us the 20/80 “heavy half” that we seek. The ‘C’ customers are the 50% that provide another 10% in sales and profits; we take care of their calls, but no special services or attention. The ‘D’ customers are those 30% of customers that only provide the final 10% of sales and profits, but they provide probably 70-80% of recalls and time-consuming issues. We usually end up ‘suggesting’ these D customers deal with ‘Company X’ which is ‘better suited to meet Customer D’s needs.’ In essence, we ‘flush’ the ‘D’ customers, who end up eating our competition alive!”

“Lack of trust has played a big part in the firing of customers on a couple of occasions. If the customer questions every price, invoice, product quality, etc., it can be very stressful for both parties. To us, the trust relationship between the supplier and our customers is very important and we are more-than-willing to earn it, but sometimes, no matter how hard we try, it’s not there from time-to- time. In those instances, we have found it is easier to let go than fight.”

“Wanted us to be a ‘quote farm,’ where we did excessive quoting and not relationship-building. After a half dozen quotes and being told we were too high on all of them, we decided it wasn’t a fit.”

“Unethical and immoral behavior.”

“Cussing out my people is the biggest reason.”

How would you advise this dealer about firing customers?

“Ten years ago, the market was so bad that we’d take any sale we could get. Today, our business is so strong, and our team is stretched so thin, that something’s gotta give. One  solution is to rid ourselves of a few customers who are awful to deal with, always complaining, are never satisfied with what we do for them, and relentlessly work us on price. But choosing to turn away business is a big step. What’s the calculus for firing customers?”

Readers’ Responses:

“If the customer is toxic to you and your company and the behavior has been addressed but does not change, let that customer go. Life is short.”

“Personality and payment are two of our biggest factors. If they are nice and still don’t pay, something has to be done no matter how well you personally like the customer. The other one for us is sometimes you just agree to disagree with someone and if a customer does not personally like us and isn’t happy coming in, best to let them drag down other places’ morale.”

“If your team’s not happy and stressed, their performance will decline and the effects will be long lasting. You should be naturally selective on what you quote and stand up for and support your team in their most valuable resource…their time.”

“Agree no one wants to turn away business, however the things you described as reasons to consider ‘firing’ a customer are exactly why you fire a customer. The customer may learn from this and develop a whole new attitude. LBM suppliers have become our own worst enemy. We often allow customers too much leeway on pricing, payment terms, meeting their demands, and making special trips to keep their job going, all for the meager profit we typically earn. Each supplier needs to choose for themselves, but for far too long, LBM dealers have been beaten down by less-than- appreciative customers. If you are not earning the profit you feel you need and the customer is marginal at best, pays late, and makes employees feel unappreciated, it is time to say goodbye.”

“We were servicing the second largest builder in our area for seven years. They did their own materials lists (which were extremely inaccurate), always needed everything ASAP, and returned mountains of hardware and material. Our sales personnel, yard and delivery crews were extremely frustrated. Several meetings offering help in estimating and detailed explanation of the cost to run our equipment and time constraints that were being put on us did nothing to alleviate the problem. We did a detailed cost analysis on this account and made a business decision. I respectfully declined to supply any more of their projects. My crew was elated, the time savings allowed us to target two new accounts that replaced and doubled that sales volume in three months. Do not spend 80% of your time on 20% of your sales.”

“We have refused to work with customers for non-payment issues, in the past. We have never outright refused service to a customer for being ‘difficult,’ but we have bid projects very high in hopes of not winning the bid. That has sometimes backfired, but at least we made a higher margin on that project.”

“It’s like supply and demand, except this graph is profit and grief. If you determine they are too out of whack, walk away.”

“Easy. Calculate the GM% required to supply them with the products and services they demand, then quote accordingly. The downside, when business in your market drops, you will have difficulty coming back to the table with them, so it’s best to sit down with them first, communicate your concerns, and find an equitable solution for both companies.”

“When a customer is more trouble than the minimal profit they generate. When there is nothing you can do or say that ever pleases them. When they are late in paying you and when you ask for payment, they threaten to take their business elsewhere and then bully your credit department. When they blow a gasket when you try to protect your legal rights to payment by applying lien(s) on their jobsite(s). Then it’s time to fire that customer. Hopefully, they will pay you in full and actually go and buy their needs at a competitor.”

“Their language or volume of voice, demands which can’t be met, blaming us instead of admitting their mistakes, refusal to listen to reason, lying about our ‘promises.’ We also flag customers with P.I.N. (Pain in the neck) upcharges to re-coup some money we’ve lost on them, which can only be done with special orders or custom work.”

“When conversations with the customer lead to no improvement, we tell them we are not up to their standards and ask them to find another supplier.”

“Short-term pain makes long-term gain. Getting rid of bad customers in good times is easier than in bad times.”

“If you aren’t making money, your employees hate the customer (which will eventually lead to bad service for not only that customer but their next one as well), and there is no long term goodwill coming from the transaction, you have to explain to the customer that either things have to change or perhaps they could be better served by another yard.”

“(1) How many times will they disrupt daily business? (2) How many employees will they discourage? (3) Can you make enough margin to offset the above issues? (4) If, after all of the above, they pay late, they are terminated!”

“How much do you actually profit on them over a year? How much time do you spend on them, what are your delivery costs for them, can their returns be resold, are they hard to deal with, do they make you bid everything, do you rebid projects, are their complaints legit, and do they pay on time? I think since you asked the question, you likely know the answer. If you’re not making money from their business, fire them!”

“I would simply refocus my efforts on customers who are looking to build strong relationships based on service and quality.”

“This is a non-brain issue. Just keep raising prices until they stop coming in. If they don’t get the hint, now you are at least making a healthy margin.”

“We are already the place people come when they cannot get what they expect somewhere else. We understand that and appreciate it. Our business depends on that type of customer. When it becomes apparent that a customer has unrealistic expectations, it is our opportunity to give them a lesson in real world expectations. Look them straight in the eye and say something to the effect that ‘since it’s clear that we’ll be unable to satisfy your expectations, or to earn a profit from your business, means we cannot help you.’ Thank them for stopping in as you escort them to the door and watch them leave the premises. Fortunately, they’re very few in this category.”

“Nasty people can shop elsewhere. Regardless if we are slow or busy, they’re just not worth it. The labor situation is not going to improve anytime in the near future and I seriously doubt their demands will subside. Move on and enjoy the great customers.”

“It’s like having a big splinter in your flesh. It hurts to have it and it hurts to get it out but once it’s out you start to heal and are no longer bothered by it.”

“No one wants to fire a customer, but if you have done your best to find common ground with the customer and still no satisfaction, it’s time to cut the cord. In most cases they will come back.”

“Usually they threaten to leave when you quit giving in to them and stop letting them beat you up on price. At this point I usually tell them that it would probably be best for us to part ways.”

“If you are spending more time, effort, and grief with lower margins on a customer with a small percentage of your total business, it’s time to fire him.”

“Customer is always right. Until they’re not.”

“Do the math. Take the profit $ you earn from their purchases and deduct the late pay costs + excessive pickup costs + any demands that cost you more than the usual customer + any additional cost of dealing with their difficult behavior. If you can’t get the additional profit necessary to cover all the extras above, then they aren’t a customer worth having.”

“Understand your true cost of doing business with each customer—cost of goods, sales expense, operations expense, delivery expense, cash discounts, rebates, returns—for each customer, and the decision makes itself.”

“When you realize you cannot meet the customers’ expectations, no matter what you do, it is time to politely tell them the two of you are not a fit. In one case, another vendor promised material that was impossible for us to provide. After a few months the customer came back because the other vendor could not deliver on their promises and we had been honest and upfront.”

“Some customers aren’t worth it, no matter how bad the economy.”

“Establish a P&L by customer based on gross profit less direct costs (delivery costs based on number of deliveries, average load size, number of returns per job, etc.). Then meet with the customer and explain the things that the customer or his subs are doing that need to be modified or their prices will have to be increased. If you lose that customer, you are no worse off than if you had them.”

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