The art and science of learning to fire customers can lead to better manufacturing practices and higher profits.
Good sales organizations focus most of their time and effort on finding new customers and markets. Great sales organizations focus on keeping their existing customers as well as finding new customers and markets. Great sales organizations go one step farther, and learn how and when to fire their poor customers so they have more time and resources to invest in keeping good customers happy and developing new customers and markets.
Customers that generate problems rather than profits are not assets to an organization – they are liabilities. These problem customers generate costs rather than revenues. Learning to fire poor customers is a scientific and artistic skill. Let’s look at the concept of cost and profit centers from the macro business point of view.
All businesses are made up of cost centers. Every department is a cost center; in that it costs money to operate, but may not necessarily bring money directly into the organization. For example, Human resources, Marketing Research, and Quality Control are all considered cost centers. However, they are cost centers only in that they contribute to helping other departments, such as sales and manufacturing, to become profit centers. Thus, they are assets and not liabilities.
However, when a cost center does not contribute to helping other departments generate profits, it too becomes a liability. It is an untenable cost in an era of right-sizing to become competitive.
It is a parasite that must be removed. This same scenario fits customers, and the concept must be applied with the same vigor. All customers are cost centers that we strive to turn into profit centers. All customers must be evaluated just as we evaluate the contributions of organizational departments. Here is a method to begin learning both the science and the art of this new skill – the Five Steps to Firing Your Customers.
Develop two customer lists – a revenue-generated-per-customer list (sales volume), and a profit-generated-per-customer list (profit). Arrange the lists in descending order so the best customers are on top and the worst are on the bottom.
Draw a line to separate the bottom 5 percent of both lists. This will show you the lowest 5 percent of your customers based on sales volume and profit. You now have the target customer firing list.
Establish a Customer Evaluation Team of three people. For each specific account use the following people: a specific account salesperson; their sales manager; and the account customer service person.
Rate the target customer. Have each member of the evaluation team rate the customer on a scale of one to ten (with ten being excellent) in regard to the following criteria:
Sales index: Future sales potential of the customer in question. Will this customer be the next American Airlines or the next People Express?
- Profit Index: Future profit potential of the customer in question.
- Effort Index: Time and work required to develop this customer to profitability.
- Aggravation index: Amount of trouble the customer causes (and will cause) and how this affects your organization as a whole.
- Resource Index: Amount of resources the customer uses (or will use) before becoming profitable and worthy of keeping as a valued asset.
Fire (or re-hire) the customer. After this exercise, you will either fire the customer and use these saved resources to find and develop a customer more suited to your organization, or you will re-hire this customer and use your resources to develop them as a valued player. What you will not do is carry these customers over an extended period of time as liabilities wasting your resources.
Firing your customers helps you to really know your customers. It turns liabilities into assets and costs into profits. Firing your customers forces you to focus your resources on long term strategic growth. Firing your customers can make you profitable.