Not all customers are created equal and each customer has a different cost associated with them. The costs can be any number of things: cost of materials, work effort required, system resources, customer support burden, and so on. You have to keep all of those things in mind when evaluating your customers and when you’re looking to reduce costs. A CEO should be obligated to review profitability per customer and fire customers that are consistently, intractably, unprofitable. If there’s no way to monetize the customer further then they should be let go.
It is quite possible to have customers that are unprofitable, even in a web-based business. Here’s an example. Suppose you’re a software-as-a-service (SaaS) company and that your only operating costs directly affected by the customer are your manpower (for customer support) and processing expense. If your top pricepoint is an unlimited pricepoint then a customer can burden your system by using an abnormally large amount of resources (lots and lots of data, for example).
2 Options for Firing a Customer
1. Tell the customer. This is usually going to be the best method for firing customers, but it may not always be the right way to go. It’s always the best from a customer dignity standpoint.
2. Don’t tell the customer. If telling the customer what’s happening can hurt your business image then you shouldn’t do it. As an example, if you are a service provider that relies on performance and capacity then you don’t want to publicize to the world that there are some customers that you can’t handle profitably. The negative publicity around your core values can be devastating. In these cases it’s best to just let the customer know that their account has been closed, or given them a date that it will be closed.
This is topic that doesn’t get talked about a lot, but it should. A company is in no way obligated to accept every customer that walks through the door or clicks a signup button. There is a lot of profitability to be gained from pruning away unprofitable customers occasionally.
Do you or have you fired unprofitable customers? How do you communicate it to them? Comments welcome!