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How to recognize customers that are bad for your business



bad customers

If you have been running your business for a while now you must know that there are good customers and bad customers. The old saying that “the customer is always right” isn’t always right. Yes, as a business seeking revenues you want more customers, but in this process sometimes we forget that instead of being good for business, some customers are actually bad for our business. They may cost you more rather than generating revenue for you. They also make you neglect customers that are actually good for your business.

The problem might be with the tools or the lack of them to analyse customer behavior, according to this article in Entrepreneur.com. When you’re dealing with scores of customers, or even hundreds of them, it is very difficult to make out which are your best customers and which are worse. But why do you need to know that? Aren’t all customers good? Isn’t having a bad customer far better than not having a customer?

The Pareto principle, the “80-20 rule” says that most of your revenue comes from the top 20% customers. And the opposite affect might also be true: 20% of your customers might be sucking out 80% of your resources. The problem is, how to recognize those 20% customers at both ends of the spectrum.

The simplest solution would be tracking each customer and calculating how much you’re spending on him or her and how much he or she is paying you back. This spending might be in terms of the resources you’re using serving him or her, or the time you’re spending trying to sort out various problems concerning that person. Again, if you have just a few customers it might not be a Herculean task, but if you have, let us say 200 customers or more it might turn out to be a bit difficult. For this you will need to categorize your customers and you will also need to use some automated system.

Most contemporary businesses use advanced accounting and costing software these days so that might not be the problem. The problem is, recognizing such customers and then taking measures to weed them out.