Is every customer a good customer? Is the customer always right? Is there a time to tell your customer to go someplace else to buy the products or services they need? When is it time to "Fire A Customer?"
Sorry, but I do not believe that a customer is always right. Yes, sometimes you must tell a customer that it is time to shop elsewhere. I know that is not an easy thing to do and I have only done it on a few rare occasions. However, sometimes it is necessary to fire a customer for the benefit of your business. Here are a few important points to consider.
1. You are in business to make money. As much as you want that well-known customer or that big increase in volume, you have to make money on a sale. Usually the rule of thumb is that as long as your revenue covers your cost of goods sold and there is money left over to put toward fixed costs, then make the sale. I am not saying you need to make money on every sale no matter what the circumstances. Sometimes losing money on a sale is necessary for future sales. But be careful you don't sell at a loss because the customer "promises" future purchases. You need to make darn sure that the potential for future sales is excellent. If not, it's best to fire the customer.
2. You have limited resources. Some customers are so demanding that they require twice as much of your resources (which means costs) as a normal customers. That's OK if using those resources is not keeping you from acquiring new customers or providing good service to current customers. If they are, then it is time to fire the customer that is using those resources.
3. One rotten apple can spoil the barrel. I am sure you have heard that saying. If you are in a business where your customers come into contact with each other and communicate with each other, then a customer who is a constant complainer can spread negativity to others. You have to ask yourself if that rotten apple is having a negative effect on others. If that negativity is hurting your business, it is time to fire the customer.
4. You are probably familiar with the 80/20 rule. Do an analysis on your customers. Look at the 80% that are only generating 20% of the sales and see what resources of yours they are consuming. Sometimes, by reducing revenue from customers who are too costly, you can actually increase profits. If you need to increase profits to stay in business in these recessionary times, you may have to fire those customers, if that will help you increase profits.
Don't get so wrapped up in day-to-day operations that you forget to do a good customer analysis. It is a valuable function that may help you increase profits and stay in business.
Those are my thoughts. I would like to hear your comments.
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4 comments:
I agree with what you discussed. There were times when I was manager at Wendys that I wanted to FIRE a bunch of customers,(regular customers) because they thought we should wait on them hand and foot. If some day I own my own business this will be very helpful. Thank you.
Interesting post, Ron. I'm reminded of something I read once about ING Direct; their CEO Arkadi Kuhlmann remarked that they do in fact fire customers who are too demanding. Are you familiar with their practices?
I am not familiar with ING Direct's practices. I would add that having a demanding customer is not necessarily a bad thing .. IF .. the customer is willing to pay extra for his/her demands. I had an EXTREMELY demanding customer many years ago in a former business. He often bragged about how demanding he was. However, he was willing to pay top dollar for his demands and he always paid on time without the slightest complaint beause we satisfied his demands. He was a very profitable customer.
"Sometimes losing money on a sale is necessary for future sales. But be careful you don't sell at a loss because the customer "promises" future purchases." - Very good point.That's where relationship, trust and good business acumen come handy.
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