The Delicate Task of Firing a Customer: Answers
Jacen Spring wanted to find unprofitable customers and try to bring them out of the red, and "fire" the costly customers. Coastal Construction, although a big spender, was a continuous drain on services and support. She debated how best to tell the CEO and Coastal's account rep her plan.
Recap: Bartram Electrical Supply Company CMO Jacen Spring asked her marketing analysts to conduct a review of customer profitability. Her goal was to find unprofitable customers and bring them out of the red. The initiative was a smashing success, with 90% of the unprofitable customers either becoming profitable or at least breaking even after a year. Jacen planned to “fire” the remaining costly customers. But she faced two main challenges: First, saving face—at some point those unprofitable customers could become desirable; second, informing the salespeople that they would lose those clients. She knew that the right communication strategy would suffice. The big issue was firing client Coastal Construction, which was one of Bartram's top-10 customers in terms of revenue. But Coastal negotiated margin-killing deals and was a continuous drain on service and support resources. She debated how best to approach the situation.
Randye Spina, Chief Solutions Officer, Affordable Marketing Solutions LLC
Here's how Spring should handle it:
Let the salesperson who negotiated the margin-killing terms and the sales VP know about the situation. Have them set up a meeting with the signatories on the client side and the CEO of Coastal as soon as possible. Have an admin professionally package the findings that prove the numbers and send it to the client before the meeting so they're not ambushed.
If the relationship stands the test of fairness and humanity, Coastal will be open to renegotiating—perhaps in small increments over the life of the contract (once Coastal's management knows how its deal is affecting Bartram). At that point, if the answer is no, then Spring can refer the Coastal team to a competitor; if the answer is yes, then once all the documentation is done to improve the contracts, Spring should meet with the sales department to provide them with guidelines so this situation doesn't happen again.
Kevin McPherson, General Manager, Communication and Marketing Services, Xerox
Naïve. Spring seems to think she's the CEO. This is a good illustration of why there's sometimes a breakdown between marketing and sales. Spring should involve more of her peers before she tells the CEO what she's recommending.
Spring needs to talk to the Bartram VP of sales and explore other options. There may be another way to increase the pricing if the customer understands the situation better. She also needs to talk to the CFO to understand the ramifications of firing the customer. Would firing Coastal actually increase the costs for the business, as they would lose some of their economies of scale?
Jim Terrinoni, Marketing/Communication Strategist, Line of Design
Here are four steps Spring should take for analyzing and firing Coastal:
1. Carefully analyze all of the time, functions, and corresponding values, not just the billable time. For example: If the client calls and says, “Would you send me that file from last month's meeting?” record the time for analysis purposes.
2. All time functions need to be connected to an hourly fee.
3. Once Spring confirms that Coastal is receiving too much value (monetary) for the return (billable hours), then she should have a serious and creative discussion with Bartram's Coastal sales rep about how he can “educate the client” on the real value it's receiving. This does not mean simply saying, “We gave you $1,000 of value and only billed you $600 last month.” That approach will make the client defensive. If, however, Bartram is offering real value, and is delivering solutions for real needs, Coastal will recognize the truth in this situation. The important thing is to get the client to understand what its needs are, which of those needs will advance its agenda, and which services Bartram offers that are better than competitors' and that will meet those needs.
4. If all of the above fails and Spring and the rep have truly given it their best shot...then Spring should educate the client on what Bartram is and what it's not: Bartram is ____, and its services or products are___; what Bartram is not is a bank, financial institution, or lending agency. Spring needs to tell it to them directly.
If this lays a guilt trip on Coastal, fine. If the client remains oblivious to what Bartram's needs are, and are not, Spring and the rep tried their best and need to spend energy and resources in finding a new client.
Anne C. Graham, Author, Speaker, and Accelerator, The Legendary Value Institute
I recommend that Spring take an unconventional approach to not firing customers, including Coastal Construction. She needs to start with the question, is Coastal truly a “vampire” customer, bleeding Bartram dry? Or is it a self-inflicted wound?
Here are two constructive approaches Spring can take to determine her next best move.
1. Find out if they love you, hate you, or tolerate you. Spring should use Net Promoter Score to categorize customers this way. The first step is to ask Coastal this question: “On a scale of zero to 10, how likely are you to refer us to a non-competing colleague?” A nine or 10 lands Coastal in the “they love us” category; a seven or an eight means Coastal tolerates Bartram; less than six means Coastal's not Bartram's biggest fan.
2. Determine “is it us, or is it them” when it comes to profitability. If Bartram is underpricing, over-delivering, failing to insist on prompt payment, or other types of situations that are controllable on its end, then the bad news is, it's you. If Coastal is abusive, constantly grinding on price, or endlessly delinquent on payment (despite Bartram's persistent efforts), then it's them.
Based on Spring's honest answers to herself, she can determine the best alternative to firing Coastal—which will likely include resetting internal and client expectations.