Thoughts from Sandye Linnetz, Systems Goddess, Process Prodigy© 2007
If it is true… and I do believe that it is… that 80% of our income comes from 20% of our customers, perhaps it’s time to think about culling the customer herd! Newsflash: The Customer Is NOT Always Right!
Consider this; your company time and energy might be more effectively utilized by working with customers who both respect and appreciate you and make you money at the same time! When you cultivate and devote more of that time and energy to your most appreciative, most profitable customers; you are guaranteeing that you will have far fewer problems, increased profits and the satisfaction of knowing that your competitors will now inherit all of your former problem customers! Yes, folks, it will behoove you to CULL THE CUSTOMER HERD!
Let’s face it, it’s not about how much money you take in… it’s about how much of that money stays in your pocket at the end of the day. It literally “pays” to look past the big customer who spends a lot, but doesn’t pay in a timely manner… or at all. The energy you expend on the customer who is never satisfied is so much better spent on those who appreciate you and what your company does for them. And don’t forget… the clients who complain TO you are probably also complaining ABOUT you as well. Your reputation is on the line every day; don’t risk it with problem clients.
Let’s identify who your best customers are. What makes them best? It’s business, folks, so we’re talking bottom line here. Is this a profitable customer? Do they pay in a timely manner? Do they nickel and dime you to death or accept a good deal as it is? Weigh the profit against the loss. And, hey, how much is your sanity worth?
HOW PROFITABLE ARE YOUR CUSTOMERS?
Here are a few things to consider:
• How much is their average order?
• How frequently do they order?
• What is your average profit margin on their orders?
• How price sensitive they are – are you constantly ”negotiating”?
• Is there profitable repeat business from them?
• What level of service do they require? From you? From staff?
• What is their return rate?
• How often are you called with a problem or “emergency”?
• Do they pay you on time?
• Do they pay you at all?
You may discover that your most profitable customers – your best customers – are not necessarily the biggest, or the ones that have been with you the longest. You may be surprised to discover that the BIG customer who “always wants more”, “has to have it yesterday”, complains about everything and takes hours of your time with problems, questions and “emergencies” isn’t worth the cost.
Now look at your existing customer database
• Is this customer easy to deal with or “high maintenance”?
• Is this a profitable customer who pays on time (so that you aren’t having to borrow against or factor your receivables)?
• Is this a high volume customer?
• Is this customer strategically important to you and your industry?
It’s pretty safe to assume that your “best” customers – those worth keeping and cultivating – are easy to work with and are willing to pay a fair price for what you sell. They keep their agreements with you and pay in a timely manner. They recommend you to others and challenge you to expand and improve. You are as valuable to them as they are to you.
You can even turn your marginal customers into “best” customers. Set your terms and agreements up front. Let them know what you will do for them and what you expect from them. Agree on the consequences for broken agreements, like late fees or, on your side, discounts or refunds.
You may want to offer rewards for keeping and/or exceeding agreements – “You paid on time so please take 2% off your next purchase”. Build a late fee into your purchase price with discounts for cash, net 10, net 30… whatever works for you and your company.
And, as for your problem customers – those who are actually costing you sanity, energy, time and money; consider reducing your reliance on them, and then, in due course, encourage them to take their business elsewhere. Yes, your competition will get their business… maybe you could apologize later. Face it; some of your current clients are driving you nuts and costing you money, so why are you stressing yourself out for little or no profit? If the profit isn’t there, and the stress is, then it is clearly time to CULL THE CUSTOMER HERD!
© 2007 Beth Schneider, Process Prodigy, Inc.
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Beth Schneider, President of Process Prodigy Inc., www.processprodigy.com, has a team of highly sought after operations consultants who reveal the insider secrets billion-dollar corporations pay thousands of dollars for. Specializing in process creation, her tools and techniques have helped entrepreneurs increase productivity by as much as 600%, and revenues by as much as 250%. Visit www.processprodigy.com and sign up to receive her Ezine, “Your Tips” and for a FREE Report on how to Save Yourself Time Energy and Money.
