Neil Sedaka said it best in the title of his 1975 hit song: “Breaking Up Is Hard To Do.” Nearly all of us have been there at one point in our lives or another. Leaving a relationship can be difficult and painful, but in many cases it’s the best thing for both parties. Interestingly, the same logic applies in relationships between vendors and clients. There are times where vendors don’t want to say “goodbye” to a customer, but it’s ultimately the best move forward. In this article, we’ll look at what makes a “bad” customer. We’ll also look at some warning signs that may indicate you need to encourage a customer to move on.
What makes a bad customer?
Although it sounds like it, the term “bad customer” isn’t really a value judgment. Sure, you may have some toxic or dysfunctional relationships with certain clients: customers that are difficult to work with, are too demanding, or don’t fit with your future product strategy. In in many cases they will self-select out of the relationship. In the vast majority of cases, a “bad customer” is determined when there is not a fit between your solution and their needs.
In situations like this, it’s incumbent upon your firm to provide that client with a smooth exit. The client may no longer be a fit because their needs changed or your solution changed. They may not have been a fit for your solution from the beginning, and bought into an idea that you have trouble delivering. Regardless of the circumstances, in most cases you want to do all you can to part ways amicably and maintain a professional relationship.
Warning signs of a bad customer
There are a few situations you should look out for. Just because a customer exhibits one of these signs doesn’t mean you should immediately plan a break up. However, the more signs they show the more consideration you should give to ending the relationship.
The first sign is that your product or service is evolving in a different direction from the original use case that made it attractive to the customer. As an example, let’s say that your initial ideal customer profile is a company of less than ten employees and with less than $2M in annual revenue. If your product begins to move up market to larger prospects, you may find that your first ideal customer profile is no longer valid. You shouldn’t automatically say goodbye to these customers, but consider whether the time and effort to support them takes away from targeting a higher value market.
Similarly, you may have customers in a market or a vertical segment that you want to exit. A good example might be a regulated industry. Let’s say that your company initially targeted the healthcare industry but you found the cost of HIPAA and other regulatory compliances to be too high. If you can’t match the regulatory requirements of a given customer or a market segment, you should consider ending those relationships.
A less intuitive situation to look for is one where a customer negotiates renewals strictly based on price with no consideration for the value received from your solution. This tends to be a strong indication that your product has become a commodity to them. Sometimes you may want to retain that customer’s logo for marketing purposes or they represent a landing point in a market you want to penetrate. However, realize that the longer you stay in a relationship with this type of customer, the more pressure they may exert on you over time to lower your price - which leads to narrower margins and lower profitability.
Providing a smooth transition
So, you’ve decided that you need to let a customer go. This can be an awkward conversation, but there are some things that will make it easier.
First, don’t make the decision to terminate a customer without a great deal of thought and planning. Know why you are doing it and the likely tradeoffs. In some cases, firing a customer may require you to inform your company’s senior management and/or the board of directors. There are some situations where it may be better to keep a customer, even if you’re losing money in the short-term. Be able to present a good business case for why you are making the choice you’re making.
Second, once you’ve made the decision to say “goodbye” to a customer you need to communicate clearly and with as much advance notice as possible. Again, this may be an awkward conversation - but it’s in everyone’s best interests to be open and honest about the reasoning. You should also consider having someone other than the customer’s current account manager or customer success manager deliver the bad news. In some cases, an executive from your company may be best suited to make the call, because it shows a higher level of investment in the customer.
Several years ago I worked with a services company that decided to terminate the pricing model under which we’d purchased their services. I wasn’t really pleased with their decision, but I understood it. The good news is this: because of the professional and proactive way the company told us goodbye, I still send them references.
The third point to consider ties into the previous one. If you are leaving a customer behind, it is incumbent upon you to make their transition as smooth and seamless as possible. Customers will tend to remember how well or how poorly you treated them in a transition. If the customer has used your system to store proprietary information, make sure they have all the information sent back to them in an easily-accessible format at the end of your relationship. If there are any outstanding action items of work to be completed for them, create a “punch list” and mark off the items as you go. I’d even suggest going as far as holding a final wrap-up call with the customer to ensure you’ve both thought of all the last minute things needed to close the relationship well.
Finally, if you left on a good note don’t be afraid to check in with your (now former) customer occasionally. If you helped them move to a new vendor, ask them how the relationship is going. The idea isn’t necessarily to regain them as a customer, but it’s to invest in a business relationship. If your former customer has issues, problems or questions - do what you can to help them out, without damaging other relationships. They’ll value the fact that you stayed in touch even when there’s no immediate economic gain for you.
Ending a business relationship isn’t much easier than ending a personal one. That said, if you are proactive and professional about how the ending is handled, you have a much better chance of the customer viewing your brand in a positive light.