MBA2264 Why You Need to Fire Your Customers

Summary

The $100 MBA Show - Episode MBA2264: "Why You Need to Fire Your Customers"

Host: Omar Zenhom
Release Date: March 14, 2023
Podcast Description: Awarded Best of Apple Podcasts, The $100 MBA Show delivers practical business lessons for the real world, offering no-fluff, actionable business training.

---

Introduction

In Episode MBA2264, Omar Zenhom delves into a provocative yet essential business strategy: knowing when and why to fire your customers. Drawing from over two decades of entrepreneurial experience, Omar underscores the importance of prioritizing high-quality customers to optimize resources and maintain business health.

---

Understanding the Need to Fire Customers

Omar begins by challenging the conventional wisdom that all paying customers are inherently valuable. He states:

[02:30] Omar Zenhom: "All customers are not created equal. Business is an exchange of value. If a customer demands more in exchange for their money than it's worth, you need to fire them because they are killing your bottom line."

This perspective shifts the focus from mere revenue generation to evaluating the true value each customer brings to the table.

---

Real-Life Examples

1. Freelance Web Design Business

   Omar shares his experience running a freelance web design business, where some clients exploited the revision policy. Initially offering a limited number of revisions, certain clients would demand excessive changes, leading to disproportionate time and effort without corresponding compensation.

   [04:15] Omar Zenhom: "Some customers would have 10 revisions in each cycle, causing me to put in 20 to 50 extra hours of work that they're not paying for."

   Realizing the unsustainable nature of these relationships, Omar took decisive action:

   [05:20] Omar Zenhom: "I had to send them a stern email saying, 'As much as I enjoyed working on your website, I can no longer work on it, given we've breached our agreement.'"

   This decision, though difficult, freed up resources to focus on more cooperative clients.

2. Handling Irate Customers in Customer Service

   In another instance, Omar recounts dealing with a highly irate customer whose webinar failed due to an uncontrollable internet outage. Despite the customer's admission of fault, their persistent vulgar language and unreasonable demands became untenable.

   [08:45] Omar Zenhom: "I had to flat out tell them, 'I'm sorry, but you've crossed the line. We cannot work with you.'"

   By standing firm, Omar protected his team's well-being and maintained a respectful business environment.

3. Zenim Designs and Return Policies

   Running an eCommerce store, Zenim Designs implemented a return policy to prevent excessive costs from high return rates. Customers exceeding a set number of returns per month were gently informed about the policy change.

   [12:10] Omar Zenhom: "Once customers hit five return shipments a month, we would have to say, 'In the future, you're going to have to pay for the return or unfortunately, we're not going to be able to serve you as much.'"

   This approach not only curbed financial losses but also encouraged customers to make more informed purchase decisions.

---

Identifying When to Fire a Customer

Omar emphasizes the necessity of establishing clear thresholds and red flags to determine when a customer relationship becomes detrimental:

1. Resource Allocation:
   Determine the maximum time, effort, and resources you're willing to invest per customer. If a single customer demands resources equivalent to servicing multiple others, it's time to reconsider the relationship.

   [13:45] Omar Zenhom: "If there's one customer that is using the time and effort typically used on five customers, that customer is not worth it."

2. Red Flags and Non-Negotiables:
   Clearly outline behaviors or demands that are unacceptable, such as abusive language or persistent policy violations.

   [10:30] Omar Zenhom: "Repeated vulgar language is a red flag. While occasional frustration is understandable, consistent abuse is a deal-breaker."

3. Performance Metrics:
   Utilize data to monitor customer interactions, returns, or service requests to proactively identify problematic patterns before they escalate.

---

Implementing a Firing Strategy

Omar advises businesses to approach customer termination thoughtfully to minimize negative impacts:

1. Clear Communication:
   Be transparent about policies and the reasons for ending the relationship. This clarity helps maintain professionalism and reduces potential backlash.

2. Consistent Application:
   Apply policies uniformly to all customers to avoid perceptions of favoritism or unfair treatment.

3. Maintain Professionalism:
   Even when terminating a relationship, uphold respect and courtesy to preserve your business reputation.

---

Advice for New Businesses

For those just starting, Omar recommends waiting until you've amassed sufficient customer data—typically six months to a year—before assessing which relationships to maintain or sever. This period allows for a comprehensive understanding of customer behaviors and their impact on your business.

[14:10] Omar Zenhom: "If you're just starting out and have a handful of customers, it might take six months to a year before you can start evaluating your customer base."

---

Conclusion

Firing customers is not about rejecting revenue but about strategic resource management to foster a sustainable and efficient business model. By prioritizing high-value customers and setting clear boundaries, businesses can enhance overall productivity, employee satisfaction, and long-term profitability.

[15:10] Omar Zenhom: "As you start building and growing your business, you want to get higher quality customers all the time. Understand your numbers, set your thresholds, and don't be afraid to part ways with those who don't meet your standards."

---

For more actionable business insights, visit The $100 MBA Show.

Transcript

[Ryan Reynolds]

Ryan Reynolds here from Mint Mobile with a message for everyone paying big wireless way too much. Please, for the love of everything good in this world, stop with Mint. You can get premium wireless for just $15 a month. Of course, if you enjoy overpaying, no judgments. But that's weird. Okay, one judgment anyway. Give it a try.

[Mint Mobile Representative]

@Mintmobile.Com Switch upfront payment of $45 for three month plan equivalent to $15 per month required intro rate first three months only, then full price plan options available, taxes and fees extra.

[Ramp Representative]

See full [e-mail] got a 7am meeting on a Monday expensing breakfast because it's in policy, wasting all afternoon submitting an expense report for that breakfast. If your company used Ramp, you could submit expenses with just a text.

[Ryan Reynolds]

Yay.

[Omar Zenhom]

Free your team from expense reports today. Switch your business to ramp.com hey, welcome.

To the $100 MBA show. Because a better U is a better business. That's why we deliver daily 10 minute business lessons for the real world. I'm your host, your coach, your teacher, Omar Zenholm. I'm also the co founder of Webinar Ninja, an independent software company I started with my co founder back in 2014. And in today's less you will learn why you need to fire your customers. Okay, not all your customers, but some of your customers need to get fired. I'm gonna explain why and how. I'm gonna share with you real life stories of how I have done this in my own business. And let me tell you, there's a right way to do this and there's definitely a wrong way. I found out the hard way. Now you might be wondering, why would I say no to customers? Why would I fire customers? Why would I stop serving people that are paying me money? Well, it's pretty simple. Customers pay you money in exchange for your resources, your time, your effort, your attention. And you don't have unlimited resources. So you need to utilize your resources as best as possible and serve the best customers. You gotta be selective because as you'll find out in today's episode, some customers might take up more than half your resources, leaving not much left for customers that really deserve it. So let's get into it. Let's get down to business. This episode is sponsored by Time Doctor. Measure and improve your productivity wherever your people work. This is a very interesting sponsorship that we took on because Time Doctor was super excited to see if they can improve our team's productivity in a real life experiment. You see, Time Doctor is a very interesting app that that empowers your team, whether they're working from the office or from the home, to be more productive. So when Time Doctor approached us, I said, how about I document this whole process of rolling out Time Doctor to my team and seeing the results. Did we get more productive? Did we solve more problems? Did we serve more customers? And as I'm recording this, I have no idea what the results are going to be. But Time Doctor was totally down to do this collaboration and share the honest results with you on this podcast. Later on in today's episode, we're going to get started and I'm going to show you how I shared how we're going to implement Time Doctor with my management team as well as the whole team and walk you through the whole process and how to get my whole team ready to be as productive as ever with Time Doctor. So why don't you follow along with us? Why don't you try this out as well and get your team on board with Time Doctor Join me and a half of a million happy customers and unlock the power of visibility, accountability and productivity with Time Doctor by starting with a free trial today. Visit timedoctor.com again start with a free trial today by visiting Time Doctor's website www.timedoctor.com to get here are the facts Let me give you a bold faced, blunt fact. All customers are not created equal. You see, business is an exchange of value. You're going to give your customers something in exchange for money. And when you have customers that are demanding more in exchange for their money than it's worth, you need to fire these customers because they are killing your bottom line, not to mention your resources, including your team. Let me kick off with an example. Back over a decade ago, I had a freelance business. They used to build websites for businesses. Part of the package of me building their website included a few revisions. But some of my clients that I had to fire would really abuse this. They would basically have 10 revisions in each revision cycle, causing me to put in 20, 30, 40, 50 extra hours of work that they're not paying for. At first I was kind of letting it go because, hey, I want to please my customers. But then I started to realize that I have customers that know how to communicate their vision very well. They're very forthcoming. When I have our first call, they understand the terms of the revisions and I would spend 20 to 30 hours less on their projects and charge just as much as the other customers that were really, really abusing it. At first I thought I'd just tighten the rules a little bit and make sure they know that there's that many revisions. But what I found is that those customers, they don't change, they get upset, they get irate, they hold your payment ransom. And what I realized quickly is, okay, I can't deal with customers like this because they are causing me a lot of heartache. They're wasting a lot of my time, my resources, and not to mention, this is creative work. And it's really putting me in a real funk not allowing me to put out my best work. I got to the point one time with one particular client where they were going through maybe their 15th revision, withholding the final payment after telling them, I can't do any more revisions until I get my final payment and then I'll have to charge you more for those extra revisions on an hourly basis. They just ignored that and asked for the revision again. After that, I had to send them a stern email saying, hey, as much as I enjoyed working on your website, I can no longer work on it, given we've breached our agreement. And I basically made it clear I'm willing to forfeit my final payment to end our relationship. Now, you might think this person would say, hey, so sorry for that. Here's the final payment. How much do you want to charge for the extra work? Of course not. They just never paid me. And I was happy with that agreement because I just had to stop working with this person. I had to fire them because I couldn't spend any any more resources for it to make any more financial sense. I then looked at how did I find this customer? What are some of the signs or the signals that I saw along the way of working with this customer, or even when I pre qualified them to work with them so that I don't repeat this again. I know how to find or identify customers like this and say, we're not a good fit before we start working. Let me give you another example. We had a customer one time incredibly irate with our customer service team. They were very, very upset about something completely out of control. Their webinar didn't go so well, and we have detailed analytics about how that happens. And it's because they had an Internet outage. And they even admitted it that they had an Internet outage. There's not much we can do if you have no Internet connection. But they were still really, really irate. And our team was very patient with them. Email after email, message after message. But after about the fifth message of a lot of vulgar language, I had to step in and tell the customer I'M sorry, but we cannot work with you. We're going to have to cancel your membership and refund your money. This customer was very, very upset. They were like, wow, why would you do that? I need to use this software. I apologize. All this kind of stuff and I just had to flat out tell them, I'm sorry, but you've crossed the line. And I cannot stand for that because I have to have my team's back. And you might have better luck with another software or another team. But us, we don't work like that. And the honest truth is, is that I don't want to exploit my team. I don't want to abuse them. This is a precious resource. I need to make sure that they're enjoying their job so they can do a good job. Nothing is worse than somebody is chewing you out day after day. Not worth it. Fire this person immediately and get another customer that's worth serving. So how do you know to fire a customer or not? Well, you got to be very clear about what you're willing to give up. The maximum you're willing to give up in terms of time, resources, patience for what they pay you. Some customers are going to require far less, some customers a little bit more. But there's got to be a maximum, a threshold, and then there's always deal breakers. Like the second example I gave you. When somebody's cursing out my team, that's a red flag. That's something I cannot tolerate. I can understand somebody maybe losing it once or twice, they're having a bad day, but repeatedly, that's a no go for us. So take the time to outline what are the absolute red flags for you, the absolute non negotiables that you cannot work with customers in your niche, in your business, in your business model. And then what are the maximum amount of resources, time, money, effort that you're willing to dedicate to each customer for each sale? I'll give you another example. When I ran my E Commerce store, custom tailored clothing for men called Zenim Designs, we had a policy in our business and it was sort of of like a gentle reminder to the customer if they made more than three returns a month. And basically we would just say, hey, we want to make sure that you don't have any questions or we can help you out before you order so you don't make these returns back and forth because it's a little bit costly on our side because we would pay for returns. Remember, this is about 15 years ago, so things were expensive back then. Our absolute threshold was five Returns a month. Now, we're not talking about actual items, but actual shipments. Return shipments. Because sometimes people order five or six things and then they return three of them in one shipment. That's considered one return one shipment. So when people hit five a month, there's something going on here where it's one, a signal of maybe abuse of our policy. Two, we're going to have to spend a lot more than it's worth us to keep this customer regardless of their lifetime value in returns and shipping. And then three, in order for us to allow free returns for everybody, we have to limit how many returns each customer can have per month. So this wasn't really written in black and white, but we would do a case by case basis because most customers would not do this. But once in a while we'd have a customer or two that would reach this threshold and we'd basically say to them, listen, you've reached five returns a month. And it was just a very gentle and honest approach. We just simply can't afford that many returns. And we would just say to them, in the future, you're going to have to pay for the return or unfortunately, we're not going to be able to serve you as much as that saddens us. And that was the honest truth. And most people were like, oh, got the message, understand I'll be more careful. Or they just wouldn't shop with us again. And that's fine because we understand our costs. We understand that that was worth the exchange, meaning it was worth to fire them to save the money that we were spending on returns. So understand your numbers, understand what your thresholds are, understand when people have return, cross those thresholds so you know when it's time to have a little chat with them and give them the option to say, hey, maybe it's time for us to part ways. This episode is sponsored by Time Doctor. I mentioned earlier today that we're working with Time Doctor on a real life experiment. We're rolling out the Time Doctor software with our own team to see if we can become more productive in the coming weeks. The first step was me introducing Time Doctor and this whole project to my management team. In our management meeting, I just shared with them flat out that we're working with Time Doctor on the special interesting sponsorship spot on the podcast. We want to see how good this app is in real life and share the experience. We think this would be a very powerful way to showcase Time Doctor to our audience. And honestly, I've been looking for ways for us to empower our team members to be more productive. We run a remote team. So when I share this with my management team, they were like, this is great. Because our team members in their own departments are looking for ways to know how much time they're spending on each app, on each project, on each task. This will allow them to help them, coach them and improve upon their own department's productivity. I was thrilled to hear that they were on board. The next step is rolling this out to the whole team and we are doing this in our all hands meeting where we gather every team member from around the world and we talk about our latest updates. This one's a big one. Knowing that we're going to be rolling this out and our team members are going to be installing Time Doctor to start tracking their time and their productivity, the Time Doctor Customer Success team reached out to us and said, hey, let's jump on a call and make sure we optimize your account and give you some great resources to help your team be successful. Right from the bat, from the first week they start using time Doctor, I thought this is incredible service. The TimeToC Customer Success Team gave us a full demo, got into our account, set us up, gave us some great documentation, help docs, and gave us the right messaging so that we can be able to introduce this to our team in the right way so they understand why we're doing this and how we'll help them do better at what they do every day. That's because Time Doctor gives you a detailed up to minute picture of you and your team so that you can manage productivity, engagement and staff attrition in your business. I'm looking forward to having a little bit more peace of mind with Time Doctor knowing that we're doing everything we can to make sure one we're productive as possible. But two there is a good healthy work life balance across the team. Join me in this experiment. Try it out for yourself. Sign up for Tyme doctor Today by starting a free trial and achieve up to 30% more productivity and unlock the power of visibility and accountability in your business. Visit the Time Doctor website at www.timedoctor.com to get it.

[Ryan Reynolds]

Ryan Reynolds here from Mint Mobile with a message for everyone paying Big Wireless way too much. Please, for the love of everything good in this world, stop with Mint. You can get premium wireless for just $15 a month. Of course, if you enjoy overpaying, no judgments. But that's weird. Okay, one judgment anyway, give it a.

[Mint Mobile Representative]

[e-mail] Switch upfront payment of $45 for three month plan equivalent to $15 per month required intro rate first three months only, then full price plan options available, taxes and fees extra.

[Ramp Representative]

See full [e-mail] got a 7am meeting on a Monday expensing breakfast because it's in policy wasting all afternoon submitting an expense report for that breakfast. If your company used Ramp, you could submit expenses with just a text.

[Ryan Reynolds]

Yay.

[Omar Zenhom]

Free your team from expense reports today. Switch your business to ramp.com.

Now. A word of warning. Firing your customers the first time you do it, not easy because you're basically saying no to money. And as a business you are wired to say yes to money. To say please give me your money so I can keep growing my business. But you have to see this as an investment. How are you investing your time, effort, resources to serve each customer? The way I look at it is if there's one customer that is using, let's say, a certain amount of time and effort that typically is used on five customers, that customer is not worth it. I can get five customers for the same resources as one. See, as you start building and growing your business, you want to get higher quality customers all the time. This gets more and more subtle. In the beginning, the ratios are going to be huge. It could be like one customer versus 10 customers in terms of uses of resources. But it gets more subtle as you start to improve. If you serve clients, if you are a freelancer, if you're serving anybody in the services, delivering any kind of service online offline, then you should really check out the book by Michael Port called Book Yourself Solid. In that book, he's got a chapter called the Velvet Rope Policy and it has a lot to do with this concept of firing your dud customers. You're going to absolutely love it. That wraps up today's episode. Thank you so much for listening to the $100 NBA show. If you love what you hear, please go ahead and hit follow or subscribe on your favorite podcast app. By doing that right now, you get access to over 2200 episodes in our archives, but also it gives you access to our latest episodes. As soon as our next episode's out, you'll see it on your device. So go ahead and hit follow right now. Before I go, I want to leave you with this. If you're just starting out and you just have a handful of customers, it's hard for you to know which ones are the dud customers, which one are the ones that are using the most. Resour enough data, you don't have a critical mass of customers. Depending on your business and how much time and resources each customer uses, it might take a little bit longer, six months, a year before you can start evaluating your customer base. Just wanted to make sure you knew that so you're not firing customers from day one. Thanks so much for listening and I'll check you in. Tomorrow's episode Q and A Wednesday. I'll see you then. Take care.

[Ramp Representative]

Got a 7am meeting on a Monday Expensing breakfast because it's in policy wasting all afternoon submitting an expense report for the that breakfast. If your company used Ramp, you could submit expenses with just a text.

[Ryan Reynolds]

Yay.

[Omar Zenhom]

Free your team from expense reports today. Switch your business to ramp. Com.