Posts In Customer Management

Customers Who Monopolize Your Revenue Stream

Businesses spend considerable time building customer loyalty. However, when one or two of your customers accounts for a significant share of your sales, cashflow or revenue stream, you need to re-evaluate your business strategy and consider taking some of the measures mentioned below.

A customer who accounts for a considerable portion of your revenue stream, might sound like a great customer. In fact, these are precisely the types of customers who you might wine-and-dine and treat with extra care. After all, they provide your business with secure cash flow and regular sales. You might even think of them as a partner.

However, customers who monopolize your revenue or cashflow stream also need to be on your “most dangerous” list. Do you rely on payments from a particular key customer in order to, in turn, pay your suppliers? If a particular customer disappears for whatever reason, will you be left in a precarious financial situation? A customer could have financial problems for any number of reasons and need to slow-down orders, cancel or return purchases, extend payment terms, pay in credit v. cash etc. A few other examples that come to mind:

• The demise of Enron as a result of internal fraud resulted in several suppliers who relied on Enron for their sales to be put into bankruptcy.

• A friend of mine used a printing company for her business for 15+ years. When she sold her business the new owner decided to bring some of those printing services in-house (to cut costs) and to outsource the rest to another company with which the new owner had an affiliation. That move nearly destroyed the printing company’s business who received nearly 40% of its revenue from my friend’s business.

Here are some tips to avoid these situations:

1. Regularly evaluate changes in your customer base and revenue streams. A “red flag” should be raised when one or two customers start accounting for 20% or 30%+ of your revenues or cashflow. Think about trying to spread your revenue streams amongst more customers. Start upping your attention to those less important customers who you might have neglected in the past.

2. Diversify your customer type. Look at your customer base and key customers. Are they all within one industry or one region? Would it be a disaster to you if that industry or region were destroyed? If so, start thinking about how your business can diversify into other industries and regions.

3. Look into the financial position of your customers. Keep abreast of industry or local news and gossip. Monitor your payment records for customers falling behind in payments or cancelling orders. If one of your key customers appears to be in financial difficulty, get in early and meet with the customer, evaluate the situation and keep tight control of the situation.

With customers, don’t put all of your eggs in one basket. If a key customer could destroy your business, you need to take action.

Sabra Easterday
Founder & Managing Member of MatchB2B, LLC
Outsource Projects to Freelancers & Companies

Copyright © 2010. All rights reserved.

Your Guide To Firing A Bad Customer

Have you ever faced a customer and wanted to yell “You’re fired!”? I am both a lawyer and a business owner, and I know I have certainly had my fair share of such clients. While all of us may have to deal with an upset or unreasonable customer once in a while, there sometimes comes a point in time where you need to tell a particular customer that “it’s not working out”. This certainly is not something we think about doing on a daily basis. After all, we are in the business of trying to get and keep customers, not lose customers. Accordingly, I’ve put together the following guide below to help you with this decision.

 

Should you fire your customer?
Sometimes the customer is not ‘always right’. Ask yourself the following few questions:

 

Is your customer losing you money?
If so, you may need to lose them. At the end of the day, you need to weigh up the fees the customer is paying you, against the cost of servicing the customer. You may take a calculated decision to lose money on a few projects with a customer in order to build a long-term relationship that will deliver other value, such as other profitable projects or referrals to other customers. If that other value never materializes, it may be time to move on.

 

Is your customer abusive or consistently unreasonable?
A customer might get upset once in a while, or ask for an urgent task to be done every so often. That’s business. We all have customers like that. However, sometimes the relationship with the customer is a disaster zone. Do they scream, yell and berate you or your employees? Are their demands consistently unreasonable? Do they change their minds about something, more times than you change your socks, and then argue over your fees? A customer who makes your working environment miserable, who upsets your valued employees and who compromises morale in your office, very likely is not the sort of customer you want for the long-term. In fact, you often end up spending a lot of valuable time and effort in dealing with the customer to smooth things over and avoid any outbursts. However, this sort of time and effort could be spent servicing your other customers or going after new business.

 

Is your customer asking you to perform tasks that are not your strengths?
Even if such tasks are not your strength, do you want to learn or expand your business into those areas? In some cases, you might not want to, for a variety of very good reasons. For example, you might want to concentrate on developing your current strengths that you feel will be more profitable in the long run. In such cases, it may be time to move on from your customer.

 

Once you’ve decided to fire your customer:

First, make sure you have in place a strategic plan to ensure you can make up the lost revenue with other customers and business. Do this before you fire your customer.

 

Second, even if you are firing the customer, do so in a professional and decent manner. This includes speaking to the client in person or over the phone and clearly and politely explaining the issues and your decision. Don’t be emotional or raise your voice. As the age old saying goes “What goes around comes around.” You don’t want other people in your industry or other potential customers hearing about the event and not wanting to deal with you in business.

 

Third, make sure you’re not breaching any legal or contractual obligations you have with your customer, including any contract with your customer. You may need to agree on particular details in order to sever your relationship. For example, final deliverables, return of confidential information or other property belonging to each other, payment of final fees etc.

 

Sabra Easterday is the Founder and Managing member of MatchB2B, LLC  – the global bidding platform for service providers and businesses to outsource projects to freelancers and companies.

 

Copyright © 2010. All rights reserved.