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Throw The Baby Out With The Bath Water!

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 -by Myron Gordon

Most people in business, either owners or managers, have been taught that all customers are sacred. “Do all you can to attract, and keep, every last customer.” From a customer service point of view this is certainly a correct statement. However there are times when you need to take a close look at all your customers. In doing so, you have to ask the following question. “When dealing with this customer, is my business making a profit?”

 
While customers bring revenue to a business, they can also drive up your expenses. Obviously the goal is to deal only with customers that have a high profit to expense ratio. Unfortunately, experience tells us that a large number of customers are, at best, low profit. Also, you may find some customers are costing your business money. How is this possible?

 We have all heard the 80/20 rules. In retail, eighty percent of all sales are from twenty percent of all products. If we are looking at any business in general, the rule says that eighty percent of your business will come from twenty percent of your customers. Even Opinion250 will likely find that eighty percent of the posted comments come from twenty percent of their subscribers. 

Do a quick check of your customer list. Identify your top three customers and their accompanying revenue. The odds are that these three customers will form a very significant part of your business. Hopefully these are also your most profitable customers.
 
However, what happens when one of these top customers is not highly profitable for your business? It is not unusual to see a large customer monopolize a supplier, demand and receive low prices, and account for a large amount of overhead. If you are the not so lucky holder of one of these customers, you may want to reconsider why you are doing business with them. 

While you may not want to continue doing business with this customer, you should take a close and serious look at why you continue to do so. Unless they help you penetrate another market, absorb a large portion of your overhead, allow you to get better discount pricing from your suppliers or have potential for future growth, you may need to consider “throwing them out with the bath water.” 

Here are some other reasons for throwing out the customers with the bath water. Clients are slow to pay their bills. Anything over sixty days is too slow. Nobody needs this type of client, so out they go. Every day that bill isn’t paid means you lose money. 

Your client always wants a good deal or wants you to throw something in for free. Get rid of them. They don’t work for free and neither should you.
 
Clients that take up too much time, either to manage or work with, should also be shown the door. You should be asking yourself, does the profit made on this sale reflect the time and resources required to process the order?  If the answer is no, then don’t accept the order. 

While a number of readers will mention that they don’t want to lose customers to their competition, I would argue that these are exactly the customers you want to send to your competition. What better way to put your competition out of business than by throwing out your low profit customers and letting your competitors deal with them?
 
The bottom line is, if you aren’t making money from a customer, or at least receiving “something” of value from the transaction, don’t do the deal. There is no value in having a customer just for the sake of having one.



Myron Gordon owns TMSG Management Services Group, which provides management and financial services to growing businesses.

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