Hard Times Or Not, No Time Is The Right Time To Keep A Toxic Customer

During tough economic times, it might appear to be counterintuitive to fire a customer. But in the long run, it can be better for your business and your sanity. Toxic customers can demoralize your sales team causing frustration and lowering employee morale. Additionally, you may find that the effort by your entire team -— including yourself -— is not worth the amount of revenue the customer brings to your company.

But before giving problem customers the boot, consider the following:

• Can your company survive losing the customer?
• What impacts will it have on other customers?
• Can your sales team make up the difference of revenue lost?
• If you don’t take action, do you risk losing valuable sales team members or customer service managers?

If, based on your assessment, you feel you’re ready to take the next steps to cut ties, try these five tips offered by Jason Zickerman, president and CEO of The Alternative Board to phase a customer out.

1. Give Them Notice: Give a 3-month notice that you’ll no longer be providing the product/service -- or even just part of it. (This generally works best in a distributor environment.)
2. 30-Day Price Increase: Raise your price with 30-day notice -— this either forces the customer to pay the increased cost (which is valid for your headaches and extra effort for this customer) or find a new solution.
3. Quarterly 10% Price Increase: Raise your price by 10 percent each quarter -— this allows you to possibly keep the customer, but get closer to achieving a profit margin from him that is acceptable for the extra effort.
4. Implement a Headache Tax: Modify your service agreement to compensate for the extra time and effort.
5. Incentivize Your Sales Team: If decreasing morale is an issue with your sales reps while phasing out a customer, consider revising their compensation plan when faced with known “tough” customers.

Zickerman also recommend you vet out all the possible options with your internal planning team, executives and possibly other advisors to the company. It’s important to consider legal, financial, public relations and other side effects of such a change.