4 Ways to Spot a Bad Customer

from Mark Mandula, Senior Vice President

It is said that one of the secrets to running a successful business is to have only great customers and to avoid the bad ones. This makes perfect sense, but is much easier said than done.

So this got me thinking, how can we really spot a “bad” customer out of a crowd? Are there techniques that I can use as a small business owner to do this before I end up with bad apples as a client?

Years ago, I attended a presentation on a similar topic. I found four key ways to spot a bad customer before you make that final sale and I’ve added my thoughts to each point. Additional information on this topic is available, www.userlike.com.

The concept to spot a bad customer is very simple and uses only 4 items to consider. Like getting a report card in school, give a grade ranging from A+ to F to your clients and prospects.

Do not let personal bias cloud your results, focus on facts and not emotion as you embark on this grading exercise. Also consider getting the opinion of those on the front line who may have a more accurate viewpoint of the customer.

  1. Price.
    1. Does your client pay you in full, when due?
    2. Are they constantly complaining about price or asking for a discount?
    3. Did you start them out at a price lower than you should have, only to be then be badgered on price?
    4. After adding up your costs [materials, labor, overhead, financing costs, etc.] is this a profitable client? Which then begs a more important question, do you really know your true cost out the door for your products or services? If not, why not?
  2. Prospect.
    1. Is there the possibility of additional growth with this client? If so, when will this happen? If not, is there something else you can offer them?
    2. How do they compare in sales growth to others in their industry versus other clients?
  3. Public Relations (PR).
    1. Does this client look good from a PR standpoint on my marketing materials?
    2. Are they well known?
    3. Look at their client reviews, what do their customers think of them?
  4. Pain.
    1. Is this customer easy or a pain to do deal with?
    2. Do they want to build a win/win relationship with you or are they combative?
    3. Do they pay you in full, on time, every time? Or are they feeding you excuses why they can’t?
    4. If their relationship is project-based, do they constantly change orders or cause delays?

Do this with your entire client list, then rank them best to worst and identify the ones with failing scores. Also, consider looking at your best clients and rewarding them by doing the simple things, like:

  1. Telling them THANK YOU; who doesn’t like being told they are a VIP?
  2. Sending them articles relevant to their industry
  3. Mailing annual anniversary gift cards
  4. Rewarding them with special pricing and promotions when you can

So what about the ones in the middle? Should you keep them? There is no easy answer to this question.

Perhaps the more profitable approach would be to identify the things you dislike and solicit their feedback on your services. The goal is to work together to identify areas of improvement.

It is difficult to drop a customer. Before you do, make sure you have thoroughly considered the revenue ramifications and created a plan on how to communicate with them. Put yourself in their shoes and provide them adequate notice and options to make the transition smooth. Ex-clients will remember how they are treated when leaving so remain professional through the transition.

In closing, the only thing worse than an indifferent ex-client is one who is hopping mad and attempts to get even by broadcasting their anger to anyone willing to listen. With social media and the omnipresent digital footprint, their bad review could come back to haunt your business for a long time.

We’ve worked with small to medium-sized businesses since 1997, we’ve spent over 20 years helping them manage good and bad customers. If you have gaps in your cash flow and are looking for more resources, check out our financial solution.