Why Firing Clients Can Be Good For Business
There are many things in life that seem counterintuitive, and for many, firing clients is one of them.
Not many businesses have more clients than they know what to do with, so if you’re like most small business owners, you find it hard to justify intentionally ending the relationship with a paying client that you spent a lot of time and marketing dollars to get.
But like many things, demanding clients follow the 80/20 rule; 20% of clients account for 80% of the customer service work.
This example was magnified in the case of Timothy Ferris, author of the 4 hour work week.
Tim took things to the extreme, as he often does, by essentially firing 95% of his clients, and focusing on the 5% that were responsible for the vast majority of his business revenue, without being a headache.
He went from working 15 hours a day to working a few hours a week instantly.
More recently, Tesla decided to not sell this incredibly annoying dude a car.
What type of client is a bad one? One or more of the following:
- They frequently make unreasonable demands and are not understanding when you explain your reasoning for not being able to meet them
- They have to be reminded of company policies over and over again
- They are often late on payments
- They are rude to you or your staff
- They frequently ask you to do things that your company doesn’t offer
A lot of businesses have clients that do this, but they hold onto them because they think they need the revenue. This may very well be true, but a temporary decrease in revenue can potentially lead to a much larger business long-term.
So let’s go over a few reasons why firing demanding clients can benefit your business later.
You Improve Employee Morale
Employee morale is important. Gallup estimated that there are 22 million actively disengaged workers, which costs the economy up to 350 billion dollars a year in lost productivity due to illness, absenteeism and other issues.
A bad client can request unreasonable things or generally be rude in their interactions with your staff, which can sour their moods and ruin their days.
At Vicky Virtual, we once fired a client that was clearly taking advantage of us, and when my partner and I announced that we were no longer working with this client, everyone’s day suddenly got better.
Since then, we have cancelled accounts with 3 other clients, which has allowed our day to day operations to run more smoothly.
Profit Margins Will Be Better
A great way to improve company margins is to enhance worker productivity. Good morale can lead to better quality work, but people are able to produce more when they focus on higher impact tasks.
Unfortunately, a difficult client will require a lot more nurturing throughout your relationship, which leads to spending a lot of time maintaining your current relationships rather than pursuing new business. Client satisfaction is incredibly important, but you must consider the cost/benefit scenario of what your company is being paid by the client versus the resource consumption that client requires.
If there is no real tangible benefit outside of revenue, it might be best to consider terminating the contract. On that note…
Not All Revenue Is The Same
At risk of sounding redundant, it is important that I highlight this fact. The cleaning business, if not run well, can be a very low margin business. When we first started Companion Maids, we were happy to be bringing in business. After some time, we realized that certain clients were getting over on us, and we realized that difficult clients tend to use the same tactics.
One of the pitfalls of cleaning is that unreasonable clients will demand things that they don’t deserve and threaten to leave a bad review if their demands are not met. This is essentially extortion, and there isn’t a lot we can do about it.
We now avoid clients that show signs of being difficult by refusing to book that appointment upfront.
One area where business owners create a lot of revenue while not creating a lot of profit is when they offer a deal on Groupon. Many business owners seek to bring in revenue, sometimes at a loss, with the hope that their new clients will be repeat customers (and become profitable.) The issue however is that Groupon clients are notoriously disloyal, and will look for the next deal rather than shopping for high quality work.
Many business owners end up screwing themselves over by chasing revenue that doesn’t equate to profits. In our case, what we did was create a deal where we gave away a small amount of money, so we could bring in additional revenue while guaranteeing a profit on each job.
Your Business Will Become More Fun
Entrepreneurship is tough, but it is easier to grow a business that you are having a fun time running. If you are working with great, exciting clients, your employees are happier, and your productivity levels are higher, it will be easier to show up every day with a smile on your face.
Eliminating hard earned revenue from your company can be a hard thing to do at first, but if you have clients that matched the traits of what I mentioned in this article, it is probably time to get rid of them.
No one should have to deal with crappy clients all the time, and I sincerely believe that no matter what you’re doing, you can run a successful company with great clients.