The hardest choice to make for an owner in his small business marketing is when it's time to fire a customer. In my over 30 years in sales and marketing, I know that the goal of business is to take every customer you can get. I owned a small business doing printer sales and service for six years. I've been a small business consultant since 2003. Firing a customer is hard.
It might also be the wisest thing you can do. Some customers are painful. Often your largest customers, they feel entitled to be demanding - and that you'll put up with it because you need them. Thus, they make life miserable for everyone in your company.
Businesses talk about the value of a partnership between vendors and customers. I know personally, partnership is wonderful. I also know personally that some business relationships should end.
True Partnership or Lip Service to Partnership
How do you tell the difference between customers who value your partnership and those who don't? It can be tough to tell because demanding ones are like abusive spouses. They protest they love you, but you keep messing up.
Demands Indicating an Abusive Partner as Your Customer
- Steep discount, even to the point of no profit
- Extra services for free, maybe even rush orders
- Extra time to pay thus becoming a collection problem*
- Employees are fatigued from getting brow beaten by him
- Requires so much of your attention you have no time for marketing and selling other customers
- Takes so much employees attention your other customer service slips
*One of my clients told me that he has a customer whose business he can get but knows it'll be at least 90 days before he will get paid so he's reluctant to take on the business.
No Loyalty to You
After putting up with all of this ill treatment, you would expect him to be loyal. Unfortunately, he either wins or he leaves. My largest maintenance account notified me my terms for them were now 90 days instead of 30. If I didn't agree, they would find another vendor.
Then when time to renew my contract, they demanded extra services and still left because I refused to match a quote that would cause me to lose money.
Calculating the Cost of Service
Here is a simple formula you can use to evaluate your costs for your customers:
1st - Calculate the total gross profit earn for each customer, at least your top 20%
2nd - Calculate the total time spent servicing each customer**
**Estimate the time of everyone not in customer service as well, like shipping and receiving. If any customer demands service that requires overtime, add 50% more time to adjust for the overtime hours, i.e. 10 hours of overtime at 1.5 times on payroll, means this time is 15 hours in your calculations.
Gross profit (sales price - cost of goods sold) per customer
Total hours on customer service per customer
= Gross profit per hour of support
This should give you an interesting means of comparing whether a given customer's business is really profitable.
As a small business owner, you want to maximize your sales. But the key point in managing a business is to maximize your profits. If you run the numbers to get gross profit per hour of support, you might be amazed at how expensive some customers are. In that case the hardest choice in your small business marketing just got easier. You might be amazed at how much more profitable your company becomes after you fire that abusive customer.
*Note: This was written by a Yahoo! contributor. Do you have a story that you'd like to share? Sign up with the Yahoo! Contributor Network to start publishing your own finance articles.More from this contributor :
- Small Businesses
- customer service