discarding clients uninformed profitability math

Discarding clients & the math of job security

How often are you discarding clients? When fussy, needy, and/or high-maintenance clients complain repeatedly, there’s significant temptation to simply toss them out with the garbage. Some business owners build “filters” into their marketing designed to repel such clients.

When an existing client provokes thoughts of “Life’s too short to deal with this“, who fires them? How is the decision reached? Is the process documented? How is the decision communicated to the client and to your team?

Hammers, nails & curmudgeons

I asked some friends how they describe people they’d fire as clients. Their responses included unreasonable, unrealistic, frustrated, afraid, disgruntled, troublesome, pedantic, rebarbative, cranky pants, curmudgeon, etc.

Are you teaching your team that getting rid of imperfect clients is the only acceptable solution? Owners know there are situations that don’t merit dropping a client. Owners discard clients based on their experience. Does your team have that experience to back up their decisions? Take care that your team doesn’t use this tactic like a hammer while seeing every complaining customer as a nail.

It’s essential to be careful using “You’re fired!” as too-frequent use can damage your reputation. Businesses learn to detect bad apples and few are surprised when these clients get fired. Taken too far, your business can get a reputation for arrogance. People will think you discard clients the first time there’s an objection or even a question. You don’t want your reputation to be “At the first hint of a problem or even a question, they tell people to leave and not come back.” Some prospects will hear that and decide not to show up.

The math of discarding clients

Discarding clients sometimes feels as easy as pulling a splinter. The pain and aggravation fades quickly, making you wonder why you ever tolerated them. Even so, every choice to discard a client impacts your bottom line. While getting rid of high-maintenance “time vampires” will probably improve your bottom line, you have to be careful not to let your team believe that’s the only solution available. That’s where the math kicks in.

If your team gets rid of one customer a month, what does that mean to your bottom line? You likely know the typical customer’s lifetime customer value (LCV). Owners usually know how often the typical customer buys from them. They also typically know how much customers spend on average per transaction. Combined with the rate at which you are adding new customers, you can determine what an improper “firing” costs you and how long it takes to recover from it.

Uninformed profitability math

Employees don’t usually know the financial impact of discarding clients. When you explain the financials of your business to your team, it helps them understand why you think the way you do. Tools like “The Great Game of Business” (start with the book) help employees understand how the business works financially (free resources) vs. how they think it works.

Learning how the business works from a financial perspective encourages employees think more like owners. It can alter “I’m working my tail off for $15 an hour while the owner gets rich.” to something closer to reality. Even if the owner IS getting rich due in part to the risks they took & the investments they made, “uninformed profitability math” isn’t healthy. This “uninformed profitability math” rarely create behaviors that are positive for the business.

Many employees have never had the opportunity to see how their work (and how they work) impacts company financials. Meanwhile, business owners regularly complain how their people don’t think like owners. Part of that thought process is understanding the financial impact of events that occur in the business each day. Knowing that what your work does for the bottom line carries substantial value.

A “We’re having a good (or bad) month” message to employees is rarely accompanied by data explaining why. Understanding what good and bad month means affects the security a team member feels about their job. This impacts their confidence in their ability to provide for their family – and certainly affects job performance and attitude.

What does “we’re having a good/bad month” mean at your business? What message does it send to your team?

Photo by Shinichi Haramizu

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