When is a Customer too Expensive to Keep?

Remember the axioms: “Any paying customer is a good customer” and “Any publicity is good publicity”.  Old axioms stay around because there is some truth to them – operative word being “some”. 

There are certainly times in a company’s life that revenue is critical regardless of cost, however, if you are fortunate enough to have sufficient revenue to survive then you should be looking at the cost of doing business with each customer, not just on a product line or market basis. 

Some customers come with baggage that requires (too) much hand-holding by you and/or your people. Is there an opportunity cost at play where you could get rid of this type of customer and free up time to do a better job of servicing more profitable customers or obtaining new ones?

It is helpful to define your ideal customer so you have a benchmark from which to work. When you are concerned that a customer may be getting too expensive you can compare them to your ideal, it may be that they closely fit the definition and just require extra effort.

When analyzing costs be sure to include the soft costs that are difficult to measure, such as; mental strain, constant disruptions, expediting product through the system, etc. 

Michael Port, the author of Book Yourself Solid, calls it his “Velvet Rope”. He is careful who he lets get past the velvet rope, they must be closely aligned with his definition of an ideal client.

NSC Bottom Line: Review your customer base regularly to determine if you are doing business with the right people/companies.