Smaller businesses have been affected disproportionately by the recent recession and rocky, slow, volatile recovery. One reason may be their restricted access to working capital via hometown banks, and another is that their cost-cutting measures might be incomplete. You might think you’ve cut costs to the bone, laid off all the non-critical employees and started reusing paperclips, but have you examined your customer list?
One of the toughest things for a small business to do is to fire their customers. Not all of them, obviously, but the “bad” ones. If you’re in a service business, you almost invariably have bad customers – you know the one’s I’m talking about – they pay late or not at all, they order endless changes, renegotiate contracts halfway through the engagement, ask for extras that don’t get paid for, take up lots of unneeded customer service time, and their total spending during the year is wildly disproportionate to their attention needs. These are profit soakers, intent on killing margin, monopolizing executive, sales and CS time, and are actually costing you money. FIRE THEM!
Unless you have empirical evidence of them referring magnificent amounts of new business your way, or evangelizing your services to everyone they meet, they aren’t doing you any good, and you should refer them gently to another supplier. There’s no reason to keep them around – if you like them personally, play golf with them, send them gifts at Christmas, but don’t take their business, it’s killing yours!
If you examine your customer list carefully, you’ll almost certainly find a few that should be fired. Here’s a quick way to locate them. Sort your list by annual spending, how much they actually paid you last year. Take the bottom 25% of that sorted list, and run it against the timecards of your sales people, CSRs and lead account people for the same period. My guess is that there are several of the lower 25% near the top of the resulting cross reference. Those are the time and profitability soakers and should be FIRED!
If your business follows the 80/20 rule, that 20% of your customers are providing 80% of the business, you could probably drop off the lower 1/3 of the list and be pretty safe. My suspicion is that if you do that, next year’s financial statement will be much healthier, your sales and account people will have more time to prospect new business and open new accounts, attack new markets, and your bottom line will be much more robust.
Donald Trump didn’t get so popular by being nice – he’s made firing people an art. Don’t shy away from this critical business responsibility and boost your bottom line!
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