Fire Your Customer?
For long time readers you will recognize this next post. However, in the past 4 days, two speakers whom I respect have made this point. Therefore I think it bears repeating. For some of you it will be the first time.
When you've been around the block as often as I have, it takes quite a lot to really change a major part of your thinking. However, I belong to a group called C12, which is made up of Christian CEO's who discuss ways to make their business better and to act more Christian as leaders. In one of our meetings we were discussing stewardship. The basic thrust of stewardship is to make sure you are wise in the use of your assets.
After your personal attributes like sparkling personality, devastating good looks, and killer drive, your number one asset is your customer list. And for my entire business career up to that day, it was all about adding to that list. Once, when running a wholesales business, we didn't even do credit checking for the first two years. Every new customer received automatic open account.
Several years ago some wisdom started to creep in. The old 80/20 rule suggested that 80% of my business was going to come from 20% of my customers. Therefore I needed to give them 80% of the attention. It never quite works out that way, but it did make me rethink a bit.
Then there were those admonitions about current customers being a less expensive source of new business than prospects. That seemed pretty wise, but it didn't slow down my voracious appetite for adding to the customer base.
What did change me was this stewardship thing. What was the real cost of my current customers? Were they paying their way? Some customers only buy promotionally priced items. Do they buy enough of the low margin stuff to justify the expense of their account? Some customers take up twice as much operator time per order as other customers. There are those who never have and never will buy more than the minimum. How much time can I devote to them? AND, the big one, some customers don't pay on time, and there is a real cost of funds and collections that must be taken into account.
Armed with this new info, I looked at my customer list with new eyes. Sure, I have some personal friendships that keep me selling somebody and spending more time than their account justifies. I have customers who have been late paying for 10 years, and I still sell them. But, if I start adding up margins + time + payment history, and the answer is a negative number, then it may be time to just pull the plug.
Just to make sure that you believe my testimony, we pulled the plug on $400,000 per year when we dropped Target and K Mart. It just didn't add up.
When you've been around the block as often as I have, it takes quite a lot to really change a major part of your thinking. However, I belong to a group called C12, which is made up of Christian CEO's who discuss ways to make their business better and to act more Christian as leaders. In one of our meetings we were discussing stewardship. The basic thrust of stewardship is to make sure you are wise in the use of your assets.
After your personal attributes like sparkling personality, devastating good looks, and killer drive, your number one asset is your customer list. And for my entire business career up to that day, it was all about adding to that list. Once, when running a wholesales business, we didn't even do credit checking for the first two years. Every new customer received automatic open account.
Several years ago some wisdom started to creep in. The old 80/20 rule suggested that 80% of my business was going to come from 20% of my customers. Therefore I needed to give them 80% of the attention. It never quite works out that way, but it did make me rethink a bit.
Then there were those admonitions about current customers being a less expensive source of new business than prospects. That seemed pretty wise, but it didn't slow down my voracious appetite for adding to the customer base.
What did change me was this stewardship thing. What was the real cost of my current customers? Were they paying their way? Some customers only buy promotionally priced items. Do they buy enough of the low margin stuff to justify the expense of their account? Some customers take up twice as much operator time per order as other customers. There are those who never have and never will buy more than the minimum. How much time can I devote to them? AND, the big one, some customers don't pay on time, and there is a real cost of funds and collections that must be taken into account.
Armed with this new info, I looked at my customer list with new eyes. Sure, I have some personal friendships that keep me selling somebody and spending more time than their account justifies. I have customers who have been late paying for 10 years, and I still sell them. But, if I start adding up margins + time + payment history, and the answer is a negative number, then it may be time to just pull the plug.
Just to make sure that you believe my testimony, we pulled the plug on $400,000 per year when we dropped Target and K Mart. It just didn't add up.
posted by Randy W. Kirk at 4:43 PM
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