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The most important decision you’ll make in your business is customer selection, or which customers you want as your target market. This should be true for any size enterprise, but it’s especially true if you own the business because 1) You have limited resources and you must invest those resources where they’ll produce the highest and best yield, and 2) Because it is YOUR business, and YOUR business should bring YOU happiness, not aggravation.

The second most important decision is arguably when you should FIRE a customer who doesn’t align with your strengths or simply doesn’t result in a value-for-value relationship any longer. Remember, it’s got to be win-win! A customer who is always causing you grief means you’re in a toxic, lose-win relationship where you lose.

When a customer becomes consistently unprofitable, too high maintenance, or otherwise doesn’t meet the definition you’ve set for yourself as the ideal target market, it’s time to get rid of ‘em. As politely as possible, of course.

Now, it’s worth mentioning that the first time you do this it will be EXTREMELY hard and you may have all kinds of second thoughts. Be prepared to redirect that energy into growing the relationships of your remaining, ideal customers, and toward going out and building new relationships with customers who are ideal for you.

If you lend someone $20 and never see that person again, it was probably worth it.” – Unknown

 

 

sgtboz said -

I’ve done this with a Top 5 customer (over $500,000 annual revenue) and it’s brutally difficult. What makes it so very very hard is that it’s so very very easy to see how removing $500,000 affects the income statement but nearly impossible to account for the ‘cost of revenue’ required to support that $500,000. In other words, it’s some part of three engineers, one part of one accountant, 1/15th of one sales guy, a little bit of the president, some part of 8 production people, and so on. When you reduce revenue by that much but don’t reduce cost accordingly, it’s tough to know how long you can let that ride. Even estimating new revenue (or worse, profit) that the company can earn by redeploying those previously tied up assets is something akin to black magic.

Even after all the analysis in the world it still comes down to a leap of faith. In the instance I faced, I knew we were going to exit the business and even introduced the customer to our competitor and set up a tour for our customer at the competitor’s Chinese production facility! I think they all thought I was nuts and, truth be known, so did several of our sales guys. :-)

Great and thought-provoking post, Dr. Burt.

June 26, 2014 @ 4:42 pm