Every so often you may find it necessary to fire an unproductive or troublesome employee. It’s never a pleasant situation but you recognize that, if done properly, it’s ultimately in the best interests of everyone involved.
It can even be more gut-wrenching to consider firing a customer. Letting a customer go probably sound like heresy. After all, it’s time-consuming and costly to find new customers that will keep the job pipeline filled. However, the truth is that not every customer is worth keeping.
It’s wise to periodically take the time to review the history of each of your customers. As you consider all aspects of these relationships, the test is whether or not the profit generated is sufficient to warrant the total costs. Not just production costs, but everything it takes to satisfy the customer.
if you identify an account on which you’re not making a reasonable profit, you need to understand whether the fault is with the customer or elsewhere. The most common reasons a customer is unprofitable are:
They’re high maintenance. These are the customers who add time and expense to almost every job.
They place orders and then cancel or make significant changes a few days later, and expect you to bear the costs.
They’re hypercritical of every shipment they receive and constantly demand discounts or do-overs.
They challenge every invoice and ignore your payment terms.
They demand that you hold up delivery until they’re ready, without compensating you for warehousing their goods.
They pay slowly and erratically, which costs you interest on your line of credit.
Poor business practices. Sometimes, however, the fault is not with the customer.
You’re so focused on keeping the customer happy, you fail to document change orders or special requests.
Your salesperson overpromises capabilities or delivery times.
You don’t have the customer sign off on terms and conditions.
The customer is not made aware that order changes may affect their cost.
You don’t account for any “extras” like holding large quantities of raw materials to accommodate JIT delivery.
Whether the problem is with the unprofitable customer or your own procedures, it’s prudent to first discuss your concerns in the hope that you can agree on mutually acceptable changes. If not, it may be time to wish the customer well and invest your resources in others who provide a better ROI.