Difficult-to-please or ill-tempered customers will zap an organization’s resources. Too much time, energy, and money can be wasted catering to so-called “bad” customers.

Moreover, customers who are a constant aggravation and abuse employees can demoralize a workforce. If the situation goes unchecked, a business owner can pay a hefty price in terms of morale, productivity, and (in extreme cases) absenteeism and turnover.

Beyond the persistently rude clients, there are also those customers who deliberately ignore bills and payment requests. In such cases, it can cost an organization more to collect payments than the company generates in revenue from the customer.

So, should an organization fire bad customers? The answer is yes, provided there’s a sound strategy and guidelines in place to support those decisions.

Evaluate customer profitability

Establishing customer profitability profiles is crucial to reducing the need to fire customers. It drives effective marketing and successful sales and service, and it helps an organization determine when to invest time and money and when to say good-bye.

With the help of customer relationship management (CRM) systems and other information technology, companies can analyze customer behaviors to identify the good segments (those it deems to be profitable) from the bad (unprofitable). In addition to the current value of each customer, companies should also identify opportunities to increase that value and evaluate the customer’s lifetime value as well.

Using this information, an organization can strategically allocate its resources to attract and keep the good, massage the middle to realize its full profit potential, and drop the bad altogether.

An organization can further tier its operations to correspond with customer segments and direct its resources accordingly. It can build various business models and even develop products tailored for each customer segment.

Customer profitability profiles let companies target new business more effectively. For example, if an organization’s competitive advantage is value-added services, it may want to avoid customers who only look at pricing.

Part ways responsibly

Even if certain customers are identified as less profitable than their peers, terminating hard-to-manage or hard-to-justify relationships should still come as a last resort. Organizations should first attempt to convert resource-consuming customers into profitable ones. By doing so, they avoid jeopardizing their reputations. They also protect the all-important commitment to deliver exceptional customer service.

Sometimes an organization cannot afford to lose a difficult customer due to its importance to the revenue stream or other circumstances. In those cases, the organization can at least identify the problem then develop a plan to replace the customer as soon as possible.

Move on to more lucrative customers

Once a company says farewell to customers deemed too troublesome and too expensive to keep, it frees up resources for growth.

The first step is understanding that the customer isn’t always right. The sooner an organization gives that mantra the boot, the sooner it can dedicate and align resources to give its bottom line a boost.