When the customer is not right
At X5 we can advise business owners on many aspects of running and growing a business. Here are some thoughts on why it can sometimes be best to lose a customer...
Most businesses aim to increase their sales and keep existing customers at all costs. But if you live by the maxim 'the customer is always right', you may find it bad for your bottom line. Sometimes the customer isn't right for you, and it makes good sense to regularly review your business relationships.
When customers think that purchasing from you is not in their best interest, they will look for a new supplier. Similarly, if one of your customers is bad for your business, you may need to make a change.
Check your customer relationships
Here are some typical signs that a customer relationship has gone awry:
- You need to spend a disproportionate amount of time dealing with the customer
- You receive a disproportionate number of complaints
- The price is never low enough
- Payments are always late
- Orders tend to be at peak times, when service is unavailable elsewhere
- Volumes are inconsistent and/or small
- Gross profit is lower than for most customers
If any customers show several of these traits, you should consider it a signal that trouble may be brewing. They may be signs of customer dissatisfaction. Make sure you correct the problems before you lose the business.
However, if you have customers with all of the above symptoms, consider terminating the relationship rather than jumping through unreasonable hoops to please them.
The benefits of losing a customer
Terminating a relationship with a bad customer can be difficult, but there will be major benefits:
- You will be able to spend more time with your best customers rather than dealing with the problems of the worst, thereby cementing your good relationships
- Stock levels can be reduced or more products made available for better customers
- Getting rid of late payers is good for cash flow
- Removing difficult customers will improve staff morale
Review your customers annually
Analysing your customers on an annual basis is a good way to determine which ones are most valuable to your company. Firing bad customers gives you more time to find good ones. You can then provide a superior service, knowing that all your customers are adding to your company's value. And that will be reflected in your bottom line.
If you are looking for support and advice from a team of professional accountants and business advisers, contact X5.