How to Identify a Good Customer From a Bad One

Peter Drucker is one of the most influential business writers of the last century, one of his main ideas was the notion that without a customer, there is no business. But are all the customers the same?

How do I evaluate the customer I want?

The quest for good customers starts early on. It starts with deciding who your ideal customer is and this is tailor to your business objectives.

You can start by considering some parameters to evaluate:

  • Company size: What sizes are the companies you have enjoyed working with? Do you prefer to work with small family businesses or large corporations?
  • Budget: What is your minimum project budget? Will you take on a project with a tight budget if the customer is strategic?
  • Payment schedule: Would you agree to receiving the full payment at the end of the project? If not, what’s the minimum up front that you require?
  • Technical knowledge: Are you willing to work with a customer who has minimal technical knowledge? How might this affect the outcome of the project?
  • Marketing knowledge: Are you willing to work with a customer who has a poor marketing strategy (this include social media, communication, PR)? How might this affect the outcome of the project?
  • Project dynamics: Are you looking for a customer who will just give you the requirements and then wait for the deliverables, or would you prefer a more engaged client?
  • Length of relationships: Are you interested in one-time project or a long-term working relationship? If you are thinking long-term, estimate whether a particular customer would have enough projects to sustain that relationship.

If you get this right, you will be less likely to wake up asking yourself why you are working on your current project.

Keep it simple, I recommend a total of four to five principles; but tailor this to your own business goals. Set your principles in a spreadsheet, rank them (0 to 10), where 0 is unattractive and 10 is attractive, if you have a doubt, please be conservative in the estimate.

When do I have to say good-bye to a customer?

No matter how many hours you have invested, if a project doesn’t work, it will continue not to work, and you will only experience more grief. Kill it as early as possible. That would be best for both you and the customer.

  • The customer is abusive: You should not tolerate any kind of abusive language or behavior.
  • You do not get paid on time:  A customer who does not understand this will hurt your cash flow and, eventually, your business.
  • The scope of the project perpetually increases, but the customer refuses to increase the budget and the release date. The responsibility for setting expectations is yours, but if you do that, and the customer still pushes for more without being willing to increase the budget, then you will end up with an unprofitable business.
  • The customer ignores your recommendations.

If you have many projects waiting on deck, you could probably fire a customer without hurting your revenue. In fact, by working with someone who don’t fit your business values, you are probably giving up on great customers who could take your company to the next level. Take all of these factors into consideration when deciding.

If you do decide to fire a customer, you should seriously consider how to go about it without hurting your relationship with them and without risking your reputation.

How can I fire a customer:

  • Look hard again at your decision to make sure it is the right one.
  • Explain the reasons for your decision, and point out that it was a business decision, not a personal one.
  • Help the customer find someone else who would be willing to work with them.
  • Bill what you deserve.
  • Note what you learned from the relationship, and add it to your qualification process.
  • Most importantly, life goes on.

Good customer vs bad one

Check out the How to identify a good customer – Done by Carlose Lopez

View more presentations from carloselopez

2 thoughts on “How to Identify a Good Customer From a Bad One

  1. There’s something to be said for choosing your battles wisely, and I think this extends to being able to choose receptive clients, when you can. Especially for agile projects, where an effective partnership with your client is a requirement 🙂

    • Totally agree on this, the success on Agile depends on keeping customers involved and engaged throughout the project. This is an exciting journey.

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