Never say no. EVER. I mean it. Not one single time, not under any circumstances ever. Make them say no. The way you do this is by determining just how much you would have to be paid in order to deal with the customer. It doesn't matter if it's a completely unreasonable number. Name it. Don't just presume they will refuse and turn them away. Tell them that your product which would normally cost $1k is going to cost them $50k or $100k. What have you got to lose? Worst case scenario they will pay you a giant amount of money, and you'll have a bit of a headache, but one that you have already determined you are willing to take on for the price you named.
This applies to customers, potential employers, and basically everything in life. There is ALWAYS a price. So take the gamble. Let them decide if it's worth it from their own perspective... maybe you'll get lucky!
37signals had an article a few months ago that essentially argued you should never do that. The argument went that if your biggest customer is only worth $200/month, it prevents you from getting confused about who you work for. If Coke paid 37signals $2,000,000 a month for Basecamp, it would turn into Cokecamp. When Coke takes their business elsewhere they'd be stuck with a weird product highly customized to Coke which nobody else wants. This does happen in practice--it's certainly one view of what happened with BitKeeper and Linux.
BitKeeper user here; AFAIK BitMover got $0 for hosting Linux though they did get a lot of fame. And their biggest problem apparently isn't that BitKeeper "turned into a LinuxKeeper", but rather free BitKeeper clones like git and hg (the first of which was originally created for Linux). So, just curious about your interpretation of your Cokecamp analogy; to me their problems (to the extent that they experience problems) do seem very much related to losing their biggest, most visible user, but in a different sort of way.
That's true, but it's something of a self-inflicted wound.
The release of git and hg was a direct response to McVoy yanking BitKeeper away (withdrawing the free-beer licensing terms that had previously allowed gratis use for free/open source projects); both were initially announced on the Linux-kernel mailing list as responses to McVoy's move, and each had had only a few weeks' worth of work at that point.
Before that, there had been a good deal of grumbling about the ever-shifting terms of the "don't piss off Larry license", whose increasingly draconian terms were designed to prevent the development of competitive software. (The last available version purported to bind all users to a non-compete preventing them from contributing to another SCM; I'm not sure California law would have allowed McVoy to enforce a non-compete on his own employees!) However, so long as these difficulties remained theoretical, there was not, in fact, much serious work going on to develop such competition. But when Larry revoked the license, effectively forcing the kernel developers to come up with an alternative damn quick, they did --- and damn quick.
So, the clones aren't something that the customers did when they got dissatisfied with BitMover; they're something that happened after BitMover chose, on their own, to end the relationship. Which makes them, as I said, a self-inflicted wound, that BitMover could have avoided through better customer relations management.
My impression is that BitKeeper was designed with an eye towards Linus's own habits, and my point was that BitKeeper suffered as a result. As best I can reconstruct I seem to have gotten this impression from this article:
"From the beginning, Bitkeeper has been aimed at making it easier to do development the way Linux kernel development is done. As Larry McVoy put it: 'BK makes it really easy to do what Linus is doing.'"
If you follow the links in that article, Larry McVoy doesn't really say what he's quoted as saying there, though he does make similar assertions.
BitKeeper certainly made no money on supporting Linux but I think the idea, on some level, must have been to get the software out there being used by serious programmers who would then love it, buy it, and evangelize it. In the driest sense, it was not a success. But in a wider sense in backfired so thoroughly that the idea of starting a commercial VCS project at this point is laughably absurd. Several things McVoy said turned out to be wrong, even though they must have sounded plausible at the time. I'm particularly pointing to this one:
"All you people trying to copy BK are just shooting yourself in the foot unless you can come up with a solution that Linus will use in the short term. And nobody but an idiot believes that is possible."
So, it probably isn't the best analogy, but on the other hand it was the first one that came to mind. :) I'd be curious to know what you think about this, and more importantly what your opinion of BK is today and how it compares after having a decade to mature.
I've found that dealing with certain situations/people is not worth any price that a person might pay.
There are people who are just unbelievably unreasonable, mistrusting, and impossible to satisfy. These types can take you off course, reduce morale, harm your reputation, and generally almost "break" your company. As a small boot-strapped, but profitable company, I would rather expend our efforts on finding and supporting good lower-paying customers who are happy with our service and with whom there is a mutually beneficial relationship.
As they say, "money isn't everything", but even to the extent that one focuses solely on money, it's not always more profitable longer-term, even with a customer who's willing to pay an outsized price.
There is not a price that is worth dealing with toxic customers. They undermine your confidence and make you resent your job. They also distract you from delivering what you promised to your good customers.
My view is that it's healthy to say "no thanks," politely and frequently.
In negotiation there is a threshold where you insult the other party. For someone you don't want to deal with this may be OK, but in general I think it's more considerate to say no than to play games with numbers.
In OP's case, if he had offered the spreadsheet guy some insane amount he probably never would have gotten any business. The more reasonable colleague would have seen the amount and scoffed, forming a poor opinion of OP's business.
It's funny we've thought about doing this in a startup I run in the real estate industry where most of our customers are realtors.
Unfortunately it's not always easy to arbitrarily raise your prices for the difficult customers because they complain even more and ask "where does it say that there will be a charge or fee for this on your website?"
I always thought it would be nice to have an extra line on my pricing page that stated "Difficult Customer Fee: $TBD" :)
The other issue is that many of my good customers have done some of the things on the 'difficult customer' list. You can't easily pigeon hole customers as 'bad'. I have only had one REALLY bad customer - he tended to swear in his email (and his password was "fuckyou"), he used various aliases, and lots of people on forums said he basically scammed them. Also he was very rude and dumb. Anyways, I decided to charge him about 5x the normal rate (and he was too dumb to notice). This is the only time I've ever done this. Anyway, he paid for a year or two and then (thankfully) went out of business.
However even my best (and nicest) customers do some of the things here...sometimes they give me a big long list of questions at their first contact, or persistently call if they have what they think is an urgent problem or question. Usually as long as they're not rude I don't have a problem with it, and they're normally pretty happy if I send an email saying I'll reply after the weekend or whatever.
I also run a business with realtors as customers and I know exactly what you are talking about, some are definitely toxic. That said, I'm sure it's not just a realtor thing but it can seem that way.
We try to detect/filter them in the sales process. Unfortunately saying "I don't thing our product is a good fit for you" invariably seems to make them want it even more.
Glad I'm not alone. Not that I'm saying all realtors are this way but we get a lot that have the "my way is the only way" mentality. It doesn't help that the real estate industry in general can tend to be a bit old fashioned. I would say 90% of all of the MLS systems I've seen require ONLY Internet Explorer in order to use it! I've never looked at any official demographics of realtors but all of our customers tend to be woman in their 40-60's that use AOL as their email address and Internet Explorer 7.
The logical conclusion is that your list price should be priced for toxic customers, and give deep discounts almost automatically to all "normal" customers.... which explains why toxic customers ask for deep discounts because they already expect to be "toxic priced".
I think this comes down to where you think the greatest return will be. Ultimately it comes down to time. If you can make more over the long-term serving a few high-paying customers, do this. If you can make more serving many smaller customers, do that. Unless you have a sizable organization, it is hard to do both and keep everybody satisfied and your company focused.
Yea this is what we do. Estimate how painful and time-consuming this client will be and price the sale accordingly. That $200 a month product we sell? For you, just $50k upfront for setup and training and $100k per year for support and licensing. Sometimes they turn out to be good clients after the initial pain.
This applies to customers, potential employers, and basically everything in life. There is ALWAYS a price. So take the gamble. Let them decide if it's worth it from their own perspective... maybe you'll get lucky!