Unprofitable customers and their management

The widespread use of customer relationship management (CRM) applications has provided companies with increasingly detailed insights into the profitability of their individual-level customer relationships. Historically, this information has primarily been used to identify the most profitable customers and to define ways for serving them in an optimal manner. Nowadays, however, companies have become more aware of unprofitable clients, and the fact that these relationships can account for a substantial share of their total customer base. Drawn from a series of research projects conducted by us over the last few years, we herein propose a six-step approach for dealing with such unprofitable customers, a framework we refer to as the ABCs of Unprofitable Customer Management: Avoid their acquisition in the first place, Bear in mind potential rescue operations, Catch the possibility of abandonment, Draw up a cost–benefit analysis, Ensure familiarity with your environment, and Facilitate biting the bullet. We also provide a series of recommendations regarding how best to break up with customers, in order to ensure that firms can separate themselves from unprofitable accounts in the least painful way.