& Send Them To A Competitor!
Let’s face it; some customers are just more trouble than they are worth. It’s the old 80/20 rule… 20 percent of them account for about 80 percent of your profit. These 20 percent are your ‘best’ customers. They are like gold! You want to keep them — and keep them happy! However, look closely at the other 80 percent of your customers, and you’ll likely discover several you’d be better off WITHOUT!
They’re the customers who waste most of your time, energy and resources. They’re the ones who are never satisfied and almost always cost you more to serve than they spend. These ‘bad’ customers won’t pay their bills on time, they are rude and sometimes dishonest. They need too much ‘looking-after’, or they complain about, or haggle over, everything.
Unfortunately, too many sales people fail to spot the warning signs. They find it difficult to say ‘no’ to potentially ‘bad’ customers and end up taking on unprofitable business. The work generated often proves to be time consuming and difficult or impossible to deliver on. This can be a drain on both resources and profitability….not to mention the damage to staff morale and the disruption or distraction from working on the profitable business that deserves more attention and pays the bills.
Okay, what do you do about it? In short… send ’em packing! Identify your ‘bad’ customers and tell them politely that they will be better off getting your product or service elsewhere.
Now, I know what you are thinking and you’re right. Not every business can afford the luxury of losing customers. It may not be practical to phone them up and tell them to get lost… well, not immediately anyway.
Still, sometimes it pays to look past the lure of additional revenue and focus more on profit. Start by dispelling the myth that you should never say no to any customer. Truth is; the customer is not always right and their custom is not always profitable to have. On closer examination, your business may be better off without some of them.
The trick then, is in identifying your ‘best’ customers and determining what differentiates these profitable customers from all the rest. Define what you consider to be a ‘good’ customer or a ‘bad’ customer. When someone crosses the line, you then have to decide whether that particular customer is “worth the trouble.” Only you can make the call. And…you may be surprised to discover that they aren’t worth the cost and effort after all.
Start by going through your existing customer database and ask yourself three questions:
- “Is this a profitable customer?” Yes or No
- “Is this customer strategically important?” Yes or No
- “Is this a high volume customer?” Yes or No
A customer with three Yes’s is clearly “the best”. However, a No to question #1 followed by one or two Yes’s is ‘bad’. Make them profitable or lose ’em!
To determine how profitable a customer is; think about the average order size, order frequency, margins, how price sensitive they are, amount of profitable repeat business, service levels, return rates, whether they pay you on time, or whether they pay you at all! You need to decide the criteria that best suits your business. Surprising, you may discover that your most profitable customers are not necessarily the biggest, or the ones that have been with you the longest.
More than likely your ‘best’ customers will:
- Ask you to do things that you do well
- Place value on the things that you do and are willing to pay a fair market price
- Challenge you to improve your skills, expand your knowledge, and focus your resources
- Take you in new directions that are consistent with your strategy and planning
The next step is to establish why your ‘best’ customers buy from you. Consider commissioning a Customer Attitude Survey to get a true picture of your strengths and weaknesses.
Ask your ‘best’ customers:
- What’s important to them?
- What attracted them to your business in the first place?
- How could your business improve?
- How could you do more business with them?
Also, look at yourself and your business. Remedy any faults, identify and begin to eliminate non-value activities. In other words, YOU may be the reason why some customers are unprofitable. Then, maximize your resources to target and better service your ‘best’ customers.
As for your ‘bad’ customers – consider reducing your reliance on them, and then eventually encourage them to do business elsewhere. Face facts; you can’t please everyone, so why stress yourself trying to? If the match isn’t right, then you will both be better off if you dissolve the business relationship. That’s why it’s so important to find out which customers are the ‘bad’ ones.
Think about it; your time and that of your business might be more effectively utilized working with customers who appreciate you and let you appreciate profits at the same time.
With more time to devote to your ‘best’ customers, you’ll have less hassles, increased profits and the satisfaction of knowing your competitors have inherited all the problems that went with your discarded ‘bad’ customers!
By Noel Peebles