With the way that the economy is going, inflation, the market gyrations, etc … ANY business seems like good business.
Until it isn’t.
Have you ever been in a San Luis Obispo store when a customer starts yelling at the employee behind the counter for something tiny? The customer makes demands and throws an adult-sized temper tantrum to get their way and the worker complies because … well, the customer’s always right … right?
That kind of mindset seems to persist in our free economy, and I’ve heard stories like this from various clients. They’re frustrated with these “Karens” but don’t seem to feel like they can let them go.
Maybe you don’t have customers yelling at your employees (or maybe you do?), but you do have people who put a serious drain on your company.
And finding a smart way to cut them out of your customer base is a wonderful thing. I HIGHLY recommend you do this, and soon.
It can be hard to cut those people off because you fear jeopardizing your revenue. Or maybe you’ve worked with them a long time or have a personal relationship with them and don’t want to lose that connection.
But may I pose to you that it’s time to shake off that mentality, to move past those types of clients, and get a bigger vision for the kind of customers you really want to serve in your San Luis Obispo business?
And though this isn’t our normal client conversation fare, I’m happy to talk more about this with you. But what we’re REALLY here for is to get your business finances to where you can see the right leading (and trailing) indicators for financial health. Let’s have THAT conversation:
Pruning out the bad to make room for new growth in your business is absolutely something to look at. Here are further thoughts to get you going…
Ending Customer Relationships for Growth in Your San Luis Obispo Business
“Dwelling on the negative simply contributes to its power.” – Shirley MacLaine
Ever take care of a plant? At some point, you probably noticed brown leaves and dead branches. You carefully picked them off or cut them away, and not long after, you saw fresh green sprouts appear.
Easy to see where we’re going with this: If your business was that plant, which customers would the dead stuff be?
Losing customers goes against the grain of our small business sense. But when it comes to saying goodbye, not all customers are created equal. How do you pinpoint deadwood customers – and what do you do once you find them?
Ending customer relationships step #1: Discovering the bad apples
Bad customers at least do you the favor of waving red flags, though sometimes they may not look red at first glance.
Your top funnel and your bottom line, for instance, could be confusing you. A given customer may pump a lot of money through your door – but by the time they’re done using your company’s resources, how much of that money becomes real profit?
Assuming your business model hasn’t changed and that a given tough customer still fits the profile of someone you can service, another red flag can be that you and your staff spend too much time appeasing this customer. Customers who are always demanding but never return your calls, emails, or texts and who seem to make it their life’s mission to be unhappy with your company (yet who never leave …) are just a drain.
Check your books. What expensive staff hours and overhead do they consume, and how much do they pay you for that? What’s the cost to you of goods sold? This will take some sharp looking at detailed numbers and can be more of an art than a science, but it’ll be worth it if you finally spot a bad apple in your barrel.
Another way to isolate the bad is to recognize the good. Which customers seem self-sufficient and don’t overburden your support team? Do they understand your side of the problem and don’t have a default of nitpicking over price? Do they talk you up in their own networks?
Ending customer relationships step #2: What do I do now?
Like we said, it goes against the grain for all of us to feel giddy about dumping customers. Decide solely based on figures discussed above. There’s no need to get rid of a customer out of anger – or keep one out of sentimentality.
Raise prices. There’s no need to jack up your prices across the board to make up for what one bad customer costs you. If you need to raise prices, consider doing it selectively. Start with raising them on just your unprofitable customer. That may solve the problem for you.
Reassess. Is the deal you have with this customer the one you signed on for? For instance, did you once give a discount for a volume of sales that never came to be? Has their management changed and is no longer so easy to deal with?
Sell them more. Chances are excellent that they’re unaware of all your company can offer – another service or product might suddenly turn into a profitable customer.
Educate them. Half the problem for an unprofitable client may be that they just don’t know how to use your product. Remember that nobody likes admitting when they need training. (This can work especially well with B2B customers.)
Ending customer relationships step #3: Saying goodbye
Raising the price and cutting the service will probably get them out the door.
For one, mentally prepare for them to bolt for your competition. You might even expect to hear some negative comments. No, we wouldn’t like it, either, but that’s just business. (Don’t forget to wish your competitor lots of luck …)
Such a customer’s departure will naturally inspire you to find new customers – a diversified customer base is almost always good – and remember that it’s better these days to lose one difficult customer than lose the staffers who are fed up with dealing with them.
When shouldn’t you get rid of a bad customer? This is a gray area. For example, don’t be quick to jettison leaders in your industry or community without careful thought. Tracking referrals and other marketing efforts comes in handy here: Did this customer get you other customers? Again (and as always), balance the cost versus the profit.
The right kind of unprofitable customer might actually be worth the effort to keep.
Having peace of mind in your San Luis Obispo business and serving the right kind of clients mean joy for the future you are building. And we’re here to help give you insight on managing (and ending) customer relationships for your financial betterment.
Dedicated to helping you grow,
Burkart & Stevens, CPAs and Advisors