How to fire bad customers, and why it’s good for your business

Fire bad customers – some of them just won’t be worth keeping.  Either they pay too little and want too much or they take up too much of your time.  You can try to change your business model and make more money from these customers if possible. But sometimes it is easier to just let them go and focus on customers who are more profitable.  Make sure you understand the profiles of your customers and where your revenue is coming from before you make any changes.  If you don’t understand your business, then stop everything and do that first!

Ways to fire bad customers (your most unprofitable customers):

  1. Raise your prices so you can service a higher end segment of the market
  2. Lower your prices but offer less so you attract more customers but in a more high volume, low touch strategy
  3. Refer specific customers to an alternate service provider (make sure that you handle the customer service and PR effectively)
One mechanism that I used in my company to fire bad customers was to offer a free low-end version of the tool.
This had many benefits:
  1. We got more market share (customers really like free especially in B2B enterprise software).  More people knew about my product and hence more referrals.
  2. The customers who could only afford super cheap just got the free version (which had limited capabilities) so I didn’t have to demo/sell them anymore and haggle on price.  Also their expectations were lower since they got the product for free.  They just used the free version and mostly didn’t ask questions.
  3. When the free customers finally had bigger pains with real budget – they also understood there was a higher price for entry.  Some complained that there wasn’t a middle ground (cheaper with more capabilities) but not enough to worry about.
Getting rid of these customers allows you to focus more on revenue and on the customers who are more profitable.  This can yield tremendous results.  Imagine doing 20 demos a month with an ASP (average selling price) of $3,000 versus 15 demos a month with an ASP of $20,000 – that is a potential revenue difference of $240,000 per month!
Also some of your unprofitable customers may go to your competitors and they can be unprofitable for them instead of you. 😃
Is it time for you to fire bad customers?