Is it really important that relationship with any customer should not be severed in bad taste? Do you really think all your customers are equally important to you?
Have you heard about Parato’s law? It is an interesting hypothesis connected with a ratio 80:20 that can be applied to many aspects of life.
– 80% of your expenses will normally be accounted by 20% of all your expenditure items.
– 80% of workload will normally be done by 20% of people
– 80% of world’s wealth will normally be owned by 20% of the people.
Applying Paratos’s law to your customers, about 80% of your business will generally be done by 20% percent of your customers! You may argue that this is too sweeping a generalization. But even assuming that the percentage varies to some extent, it is still a valid indicator – it shows where to concentrate to maximize your efforts on satisfying customers and increasing the revenue.
It also means that out of the large number of customers who bring in far less revenue to your business, you can afford to fire some of them and be happy and relieved at that! The time and effort you have spent so far on them can be utilized more purposefully on your core clientele by serving whom more effectively, you have every scope for increasing your revenue.
If “firing customers” sounds rather harsh and inappropriate considering the exalted status a business is expected to give to its customers, we could perhaps give a more decent and diplomatic phrase as an alternative “easing your way out of inconvenient customers”!.
Having identified and segregated your core clientele based on revenue figures, how do you go about identifying such of those customers from whom you can “ease out of business”?
Here are some of them:
(1) Tough negotiators
These are customers who have always been bent upon squeezing every possible penny out of your quote by persistent and tough negotiations, promising that in future you are poised for getting a huge business from them; but your business history shows that such a future never came!
(2) Highly bureaucratic customers
These are highly procedure-oriented customers. Right from giving quotation till warranty commitments are satisfied, there are plethora of procedures to be followed, forms and documents to be submitted in duplicate/triplicate, personal discussions to be done amidst a panel of officials at several stages, minutes to be signed, bank-guarantees to be submitted for getting any payment from them, penalty clauses for delayed deliveries are to be agreed to and so on. Unless profit margins are above normal, you will find that the time and energy spent on these customers are not worth the returns in the long haul.
(3) Insatiable customer
In these customers, from order value to payment — everything could look attractive to you; but the customers’ demand on quality, delivery schedule, after-sales-service — every small element of the business transaction will be exasperatingly tough to meet; they will be perennially unhappy about your responses; they will keep on chasing you minute by minute, tirelessly breath behind your neck and would expect you to dedicate all your man-power and resources just to satisfy them and them alone. They will show least consideration in providing you the appropriate facilities to carry out your job at their place and will utilize every small excuse to withhold or delay the payment due to you. Without your knowing it, you may be losing the good will of your other customers in the pursuit of “satisfying the insatiable” customer.
(4) Inconvenient customers
For example, it could be a customer at a geographically inconvenient location; you may find it very difficult in transporting goods, deploying man-power for after-sales-service etc.
(5) Poor pay masters
Everything else may look good with them — order value, regularity of orders, cordiality in relationship — everything except getting your money! They will cajole you to supply huge orders without paying advance; thy will happily delay payments far beyond the mutually agreed credit terms and stealthily erode or wipe out your profit margins. If you take tough measures to recover the money, they will diplomatically corner you citing the “long standing relationship”, “need for give and take at critical junctures in business” etc. If you attempt to rise the prices, they will cry aloud that they can not survive in business with “rising input costs”.
Let us face the reality. Some of your core customers too could possess some of the above listed characteristics! If, by asking the simple question: “Is the revenue received worth the pain of serving this customer in the short and long run?” you get “No” as an answer, it is high time you fire (or rather ease out of the way of) the customer.