Our guest blogger this week is Steve Theobald from Proshred. His contact information is at the end. This is a great topic and Steve beat me to it. So here is Steve Theobald on unprofitable customers.
One thing I find small business owners do is hang on to unprofitable customers no matter what the cost. If the customer is not profitable for you, there’s no reason to keep him – fire him instead!
Why might a customer not be profitable? There’s the easy answer in that you sell them a product or service for less than it costs you to provide that product or service. If you sell widgets for $50 and they cost you $100 to buy and deliver them, this is an easy call. You should 1) raise your selling price to cover your costs and allow for a reasonable profit margin; or 2) try to find an alternative and cheaper supplier of that product; or 3) if neither of the first two options is possible, stop selling to that customer and if need be stop selling that product entirely!
But there are other, less obvious reasons why a customer might be unprofitable for you. Do you have customers who are slow payers, thereby robbing you of cash flow and forcing you to spend valuable time on the phone trying to coax payment out of them? I’m lucky in that I have very few customers in this category since our fees are so small that most customers just write the check as soon as they get our invoice, but I do have a few recalcitrant customers each month. I and my office manager used to be very patient with these customers because we were nervous about generating ill will as we were just starting out. These days, however, we are more willing to get tough with delinquent customers because, quite frankly, if the customer is not paying, then we are not making money, and we don’t have time to chase down folks over $50 invoices. So, if an invoice becomes seriously overdue, we will either turn the account over a collections firm or terminate the account entirely.
Do you have customers who are very demanding? Do they call all the time, asking for products or services on unreasonable terms? This behavior is another drain on your profits, if you are not appropriately compensated. In our business, we sometimes get scheduled service customers who habitually call us to say their shredding container is overflowing and that they need us to visit TODAY. The problem here is that we try to group our customers into tight, efficient routes so that we spend more time shredding paper and less time driving. If we happen to be servicing Arlington that day and the customer is in Fredericksburg, we will lose money sending a truck all the way to Fredericksburg to service a single container for our usual $50-ish fee. One customer who insisted that he needed us to come only every eight weeks but could be counted on to call every two or three comes to mind. If you have a customer like this, try to renegotiate your terms with that customer and explain what it really costs to meet his needs. The customer may be willing to pay more for his more demanding requirements. If you can’t do this, don’t be afraid to part ways with that customer, but do it professionally. You’ll save yourself a lot of frustration, and potentially some ill will if you can amicably separate before the customer gets so mad at you that he starts badmouthing you to other prospects.
Take the time to make yourself aware of what it REALLY costs you to sell your product or service, and to maintain your client relationships. You’ll be glad you did.
Stephen B. Theobald
General Manager
PROSHRED of Northern Virginia
45668 Terminal Drive, Suite 150
Sterling, VA 20166
Tel: 571-262-7621
Cell: 703-981-5059
Email: steve.theobald@proshred.com
http://www.proshred.com/
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