We hear it all the time: “The customer is always right.” It’s a service principle that we’ve all been told over and over again but that isn’t actually true.

Of course, it is our responsibility as service providers to listen to and address our customers’ needs. But some customers aren’t always right. And sometimes, those customers end up draining our time, energy, money, and resources for very little profit in return. Odds are, the customer you have in mind right now is dragging your business’ growth.

The challenge you are facing is that you don’t want to give up a client!

This is understandable; customers are already hard to come by, and the thought of willingly giving up business induces fear… fear of burning a bridge, fear of losing revenue, fear of confrontation. But fear often gets in the way of good judgment, so it is worth taking a step back and considering this issue more logically.

In order to maximize your business’ potential, it is necessary to give constant attention to the quality and reliability of your customer base. By periodically reviewing and categorizing all of your clients and taking the subsequent, necessary action, you can guarantee happy customers, happy employees, and better business.

This system works by identifying where each of your clients fall on the following grading scale:

• A – A customers are your ideal clients who are actively referring other prospects to you (typically other A customers). They are the 20% of your customer base who are likely driving 80% of your profits.
• B – B customers are your steady, good customers who are satisfied, who pay their bills on time, and who are enjoyable to work with. Ideally, the bulk of your customer base is comprised of B customers.
• C – C customers are those who need improvement. Perhaps they don’t pay their bills on time, or perhaps they are somewhat difficult to work with. They’re not the worst, but they’re certainly not your dream clients.
• D – D customers are the ones who keep you up at night. They might be needy, a pain to work with, late to pay their bills, unprofitable, or causing noticeable aggravation amongst your team. They are the 20% of your customer base who are driving 80% of your headaches. D customers are likely to undervalue or undermine your service – a D customer isn’t always right.

In order to know where each of your customers fall on this scale, you’ll need to come up with a set of criteria against which you can compare them. These criteria can include any client qualities, broad or specific to your business, that you feel are relevant. Questions worth considering include:

•  Do they pay on time?
• Are they easy to work with?
• Do you enjoy your meetings with them?
• Do they refer other customers?
• Are they profitable for you?
• Are they trainable to a point of profitability?

On an annual basis, take the time to review each client according to these criteria. After discussion, assign each client a grade, A through D. There are no half grades allowed; for the purposes of this exercise, you cannot give any client a C plus or a B minus. Once you have given everyone a grade, you can take action.

The first action is, for many, the most difficult: remove D customers from your business.

Here are the facts about removing D customers: if they aren’t trainable, you are better off without them, despite your fear of losing revenue. By pruning off D customers, you are creating more time and space for the customers who deserve your attention. And in turn, your margins will improve; by removing low-margin customers from your average, your overall margin will rise. Remember, removing revenue does not equate to hurting your margins, and your gross
margins are the key indicator of the value of your business.

If it eases the process for you, you can always refer your D customers to another business who can better serve them according to their buying criteria. They are likely more suited to a business that provides less attentive service at a lower price. You don’t have to be everything for everyone. And remember: losing revenue is not always a bad thing.

You will be left with A, B, and C clients. The next step is to retrain C customers in an effort to convert them into A customers. This may involve reestablishing your expectations or sharing how they can best interact with your team in order to get valuable results. The goal is to try and remediate their deficiencies so that next year, you can confidently categorize them as A or B customers or conclude that they are D customers and remove them from your business.

As you take action with C and D customers, do not forget about your B customers. They are happy and cooperative because they are satisfied with your service, so make sure to keep it up.

The final (and ongoing) step is to show more love to your A customers. As the clients who are actively growing your business for you, they deserve the majority of your attention and focus. Make an effort to establish systems for extra communication, care, and valuable service for your A customers in order to reinforce that reciprocal relationship.

When you handle each client with the action appropriate to their grade, you will encourage a positive feedback loop of cooperative customers and quality service. You will stop holding your business back and start promoting margin growth.

When you have a roster of excellent clients, you’ll be able to truthfully say: “the customer is always right.”