In today’s world of business, it’s no longer that “the Customer comes first”, but also that you’re really only as good as the Customers you purportedly are putting in first place. That said, sooner or later you or your small business will be in the position where you’re faced with a tough Customer decision: should I fire my Customer?
This is not an easy decision and cannot be taken lightly. To guide you through the basic questions that you need to answer in order to make this decision, there are five basic areas you, as a business owner must assess:
1. Assess the Hard Facts – namely, do the math, review the metrics, and assess whether it makes good “business sense” to keep this particular, problematical Customer?
a) Review GM% and compare them to similar Customers in your portfolio. How do they measure up – are they well below Customers similar in size and complexity when it comes to gross margin % or contribution margin?
b) What are their Payment Terms as compared to similar Customers? Meaning, after your company has delivered the goods or services sold to them, do they pay you? This seems like an obvious question, but you would be surprised by how many important Clients are lousy payers. So ask the hard question: Is your Client a good payer, or do they consistently pay late, requiring you and your staff to constantly chase them down to get the money owed you?
c) What is the real “Cost to Serve” this Customer? Take into consideration sales personnel, travel costs for sales calls and account management, allowances and discounts, bonuses, fees on late payments or added Collection costs, marketing investments (very often made mostly to make them happy) or any other of the “hidden costs” associated with having them in your sales funnel. As before, how do they stack up to Customers of similar size and profile? Do they stack up, or no?
2. Simulate Life Without Them, meaning “can your Business survive without them”?
a) Precisely define “Survival” and what are the limits to what you and your operation are willing to endure to running your business without them?
b) What is the projected impact on Revenue (lost), GM, Net Income, and the various areas with direct contact to your Client, namely sales, marketing, customer service, finance, and others?
c) Will you have to scale down post break-up? Namely reduce employees and infrastructure used to serve the account, or can it be redeployed? Are there gains related to cost reductions, time and energy consumed in resolving problems, accounting, Collections, etc.?
d) Alternatively, can you redeploy the team or staff who previously provided support to this Client, or do you risk losing them? If so, what is the impact of losing these key employees if redeployment is not possible?
3. Turn the Tables – renegotiate your current service level agreement to be more favorable to you, or otherwise, you will be forced to let the Client go. Renegotiate the key areas that have been problematical to you: pricing, payment terms, sales level support and dedicated travel, bonuses, allowances & rebates, etc. Now that the threat of leaving is real, can you turn the table in your favor and renegotiate more favorable terms for your and your business?
4. Will You Be Happier? I’m not kidding when I include this question in our decision set, but it absolutely must be considered, and is totally relevant to the small business owner when it comes to deciding to keep a problematical Client? You see, one of the most important reasons people go into small business ownership is to do something they love and enjoy. So, if you’re running the business you love, and someone comes in and makes your life miserable, as the owner, you must evaluate whether it’s worth it you and your business, to maintain that Client in your customer stable. If that’s not the case, why did you go into business for yourself in the first place? So yes, happiness is an important criterion for evaluation, and I pose it here: will you and your business be happier without this particular thorny Client? When Paul McCartney writes …”money can’t buy me love…” he wasn’t foolin’ around and it is a very serious and relevant question, even outside the romantic sphere when applied to business and customer relationships.
5. Make a Decision. Based on what you learn, be prepared to make a decision based on your findings, even if that means severing your Client relationship and effectively, firing your Customer. What has to be kept in mind throughout this entire process is that as a business owner, you have to make the decisions which are the best for your business, and not your Customer’s. And if that means terminating your relationship, then you’ve done your job as a business owner, and that is the best decision. Bravo.
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Thank you and best wishes for success.