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By Noel Peebles
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
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,
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.
As Mae West once said, "There are no good girls gone wrong,
just 'bad' girls found out."
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
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!
Copyright Noel Peebles, Market Leaders Ebooks.
Noel Peebles is author of ‘Sell Your Business The Easy Way’
http://www.sellabusinessforsale.com A practical guide to
helping small business owners maximize their return when
selling their business.
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