Identify and evaluate problem customers to determine when it’s time to restructure the relationship— or when it’s time to cut your losses and move on.
Put a stop to problem clients who take advantage of you, abuse you, or fall behind in payments. Appraise the cost of keeping the accounts, consider restructuring the way you conduct business, evaluate the benefits of customer
retention, and “fire” the customer if necessary.
Analyze your Accounts. Before you sever ties, gather your customer data in order to assess the costs and benefits of retaining your customer. Evaluate the cost of goods and profit margins for that customer, payment history, and the amount of time spent by you and your staff in dealing with the customer. You should come away with a clearer picture of the actual cost of doing business; you may find the account you thought yielded $100.00 per item or per hour is actually yielding much less.
Change the Way You Conduct Business. If a customer demands lower prices, will he agree to purchase in bulk in exchange for a lower unit price? A small discount for early payment might be incentive enough to get late-payers on track. Changing the way you provide services or goods may be better than cutting the customer off your list.
Other Benefits to Consider. If an account is unprofitable, is there another purpose the client is serving? A local bank providing a small loan to a retailer may not generate much return, but the customer may “talk up the bank” to everyone who comes into the store, and refer many good customers. If the customer was an early supporter of your business or continues to bring new customers to you, consider that as well. Also consider the percentage of business, but don’t let it deter you from saying goodbye. It may be difficult to lose 25% of your income, but consider the results if you replaced that client with one or two who are easier to work with — and more profitable.
Fire Your Customer. If you conclude you would be better off without a customer, be as tactful and diplomatic as possible. Explain that you are not in the position to meet certain service expectations without raising your costs; that you have worked to satisfy a complaint or provided full restitution and there is nothing more that can be done; or that you must discontinue providing goods and services until those outstanding invoices are paid. Then use the time and energy you save to market yourself to new and better clients.
If you don’t have the time or resources to accomplish this, we can help you identify and select an appropriate resource to get the job done. Contact us.