Dealing with Difficult Customers: Set Boundaries, Keep the Relationship

When is a customer really difficult?

The customer calls every other day, changes the order after sign-off, pays late, and speaks to the clerk in a tone nobody in the business approves of. Yet he brings in twelve percent of revenue. The owner faces a question almost everyone knows: put up with it, take a firm line, or part ways?

The question is harder than it looks. Some customers considered difficult are only reacting to unclear agreements, late responses, or changing contacts. Others behave the same way toward every supplier. This guide answers one question: How does an owner deal with difficult customers so that they set boundaries, protect their employees, and still keep the relationship where it is worthwhile?

To answer it, we first clarify what a difficult customer is and introduce a thinking model for checking the cause. Then come the research findings, two views, and a four-step approach.

What is a difficult customer?

The marketing scholar Christopher Lovelock (1994) coined the term “jaycustomer” for customers who deliberately or unintentionally disrupt a service and thereby harm the business or other customers. Harris and Reynolds (2003) speak of dysfunctional customer behavior. For a small business, a simpler distinction into three forms is enough.

• Effort: The customer causes considerably more coordination, changes, and rework than comparable customers.
• Rule-breaking: The customer does not keep agreements, for example on payment terms, approvals, or their own obligations to cooperate.
• Disrespect: The customer treats employees condescendingly, loudly, or insultingly.

The three forms call for different responses. Effort is a question of price and process. Rule-breaking is a question of agreement. Disrespect is a question of a boundary that is not negotiable. Mixing them up ends with negotiating over tone as if it were a discount.

The thinking model: is it the customer or us?

In 1967 the psychologist Harold Kelley described the covariation model. It explains how people attribute the cause of a behavior: to the person, to the thing they are reacting to, or to the circumstances. Kelley names three pieces of information that decide this. Applied to difficult customers, they read as follows:

The three answers produce three typical patterns. If many customers complain about the same thing, the customer behaves this way only with this service, and it happens regularly, the cause probably lies with you, for example in an unclear proposal or slow responses. If only this customer complains, about everything, and repeatedly, the cause probably lies with the customer. If it happens only once, it is probably a circumstance: a bad day, pressure from above, a misunderstanding.

An everyday analogy: when a guest in a restaurant sends the food back, a good host first checks whether other guests criticized the same dish that evening. Only if this guest alone complains, on every visit, does he look for the cause in the guest.

Treat every demanding customer as difficult and you miss the flaws in your own process. Treat none as difficult and you sacrifice your employees.

What research shows about difficult customers

Wu, Groth, Zhang, and a co-author (2023) summarized the research on customer mistreatment in a meta-analysis. They analyzed 221 effects from 135 samples in 119 studies with 47,964 employees. Customer mistreatment was associated with more negative emotions, lower job satisfaction, lower commitment to the organization, less engagement, more frequent turnover intentions, and poorer performance. The negative emotions explained part of these relationships.

In a field study, Harris and Reynolds (2003) examined the consequences of such behavior. They found consequences on three levels: for employees with customer contact, for other customers who witness the behavior, and for the business itself.

Especially revealing is a recent study by Fan, Fan, Chen, and a co-author (2026), which explicitly works with the covariation model. They surveyed 282 customer-facing employees from financial services, insurance, real estate, healthcare, consulting, and other industries in China at three points in time. Those who rarely saw colleagues being mistreated felt singled out, tended to blame themselves, felt ashamed, and withdrew inwardly. Those who saw it often tended to hold the customer responsible, reacted with hostility, and were inclined to deliberately worsen their service.

Managers do not always react helpfully either. In two experiments and a field study, Liu, Ma, Wang, and colleagues (2025) found that empathetic managers who witnessed disrespect toward their employees were, on the one hand, more supportive. On the other hand, they came under pressure themselves and then more often reacted brusquely toward their own team.

The limits: most studies look at consumer services such as hotels, retail, and call centers. In business-to-business dealings, relationships are longer and more personal, and a single customer often carries more weight. But the strain on employees is likely to work in a similar way.

Two views: the customer is king, or employees come first?

The first view puts the customer at the center. They pay the wages, and arguing with them means losing them. In this view, putting up with difficult customers is part of business, and good employees learn to handle it. In its favor, demanding customers often make a business better.

The second view puts employees at the center. They carry the burden, and the meta-analysis by Wu and colleagues shows that this burden costs satisfaction, performance, and commitment. If you do not protect your people, you pay with sickness, resignations, and poorer service for all other customers.

I consider both justified if the three forms of difficult customers are kept apart. For effort and rule-breaking, the first view has a lot going for it: a demanding customer deserves a clear agreement and an appropriate price, not rejection. For disrespect, the second applies. Here the owner's stance is decisive, because according to the findings of Fan and colleagues, employees interpret the silence around them. Saying nothing leaves them alone with the question of whether they are to blame.

The Boundary Ladder: four steps from conversation to parting ways

A four-step approach follows from this assessment. Each step is taken only if the previous one was not enough. In cases of disrespect, the owner starts at the third step.

1. Clarify

   Use the covariation model to check whether the cause lies with the customer, in the service, or in a circumstance. Then talk to the customer about the pattern, not individual incidents: “We notice that approvals often come after the agreed date. Why is that?”

2. Agree

   Put in writing what applies from now on: contact person, deadlines for approvals, how changes after sign-off are charged, payment terms. What belongs in the order confirmation is described in the article Order Confirmation.

3. Name

   If the agreement is broken or employees are treated disrespectfully, the owner takes over the conversation. They name the behavior, its effect, and the consequence if it recurs, calmly and without threats.

4. End

   If nothing changes, the collaboration is restricted or ended. Parting ways is the last step, not the first.

For the conversation at the third step, a fixed structure of three sentences helps: “On Tuesday you shouted at our employee on the phone. As a result she had to end the call and your request was left undone. We are happy to keep working with you, but not in that tone.” How such conversations go without escalating is described in the articles Delivering Bad News and Handling Conflict Conversations in the Team.

How to handle the parting itself so that it does little damage is described in the article Turning Down the Wrong Customer. The same order applies there: Mittal, Sarkees, and Murshed (2008) describe parting ways as the last of five steps, after reassessing, informing, renegotiating, and switching to a different offering.

When the difficult customer is an important customer

The boundary is hardest to draw with customers the business depends on. If you make twelve percent of your revenue with one customer, you hesitate to contradict them. Yet this very dependence is often why the customer behaves this way. They know they have little to fear.

A sober look at two numbers helps here. The first is the contribution margin after deducting the extra effort. Many difficult customers are less profitable than their revenue suggests. The second is the dependence itself. How to measure and reduce it is described in the article Concentration Risk. Reducing dependence gives you the freedom to set boundaries.

• Estimate the customer's extra effort in hours per 10,000 euros of revenue.
• Calculate the contribution margin after extra effort.
• Determine the customer's share of revenue and capacity.
• Check whether extra effort can be charged in future.
• Decide whether to continue the relationship at step two or prepare step four.

What you can do this week

1. Name the three customers who take the most energy from your team and assign each to one of the three forms: effort, rule-breaking, or disrespect.
2. Answer the three questions of the covariation model for each.
3. For one customer with effort or rule-breaking, put a written agreement in place on contact person, deadlines, and changes.
4. Tell your team that they may end insulting conversations and that you will make the call back.

Conclusion: how do you deal with difficult customers?

The question was
an owner deals with difficult customers so that they set boundaries, protect their employees, and keep the relationship where it is worthwhile. The answer begins with a check. Not every demanding customer is difficult. The covariation model helps clarify whether the cause lies with the customer, in your own service, or in a circumstance.

A clear separation follows. Effort and rule-breaking are resolved through agreements and prices, disrespect through a boundary the owner names personally. Research shows that customer mistreatment weighs on employees and that they interpret the silence around them. A relationship with a difficult customer can be kept. But not at the expense of the people who manage it every day.