Friday, June 27, 2014

Why and How to Fire a Customer

For many companies, the mere mention of “firing” a customer is unthinkable and even sacrilegious. I say if you can’t or won’t consider it, then you must stop complaining, suck-up all the problems and get a big bottle of your favorite medicine for headaches. You’re sure to need them.

On the other hand, if you are concerned about your bottom line and mental well being, there are a few things you need to consider and then do.

  1. I’m going to make the assumption that you’ve already exhausted the communication route to resolve the issues. Most problems develop slowly over time and we let them slide until they are overwhelming
    . If no solution(s) can be found, you’ve got to move on to the evaluation/decision phase.
  2. I’m also going to assume that you are doing at least a quarterly if not a monthly evaluation of the profitability of all of your customers. If not all of your customers, then at least those comprising 80% of your sales. If possible this analysis should also look at individual jobs by customer as well. If you aren’t doing this analysis on a regular basis, then you need to do one immediately for the customer that is in question.
  3. Look at how you are doing. Is the profit for that customer high enough to justify the higher “maintenance” you are putting in? Make sure that you not only consider the direct labor and material, outside purchase and fully loaded hourly costs but also add in how much extra unpaid time (times an hourly rate) you and your employees are expending. Be fair but be honest. This would include the phone call time, uncharged expedite costs and the cost of your mental anguish of dealing with these folks.

Now it’s decision time.

If you are making less than what you consider a reasonable return, the choices are: 1) Raise prices either on individual parts or across the board or 2) find alternate work from other customers and then “FIRE” this customer. If you’ve tried unsuccessfully to raise prices in the past and/or they won’t accept increases now, your decision is easy.  

What is a reasonable return? Remember that by investing in bonds, you can make a fairly risk free return of 5-6%. I urge my clients to achieve 10-15% minimum. (Call me and I’ll show you how).

Before you pull the trigger and let them go, you must replace the work. My bet is you’ll find the margins on the new work are higher than the current work. You will also probably find customers that actually want to work with reliable vendors that just want to get the job done and get paid for it.

In the end, it’s your decision. By not taking action, you condemn yourself to be a slave to your customers. Also, remember that if they consider you a commodity to be used, they shouldn’t be surprised when their vendors who have had enough, finally dig in their heels and say “no” to the shenanigans.  

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