Fire Your Customer?

That is not such a dumb question as it might look at first glance.

Who does not have some customers who want it all on their terms; who nickel and dime you to death; who burden you with unsubstantiated claims and unwarranted returns? Who make you jump through hoops and never pay you on time and only as much as they think they owe you? Do you recognize that customer inside your business?

There is a disproportionate resource (time and management) commitment associated with managing this type of customer. Fire him! Since you don’t get all of the business from your market place anyway, leave this customer to your competition. It will absorb their scarce resources and take their eyes off the ball.

Just like there are undesirable customers, there are also undesirable suppliers, sales representatives and SKU’s.

As a rule, every distributor owes it to him/herself to set up financial tracking systems that allow for the systematic calculation of margin contribution (per month, fiscal quarter and year as desired) per:

·         Customer

·         Supplier

·         Sales Representative

·         SKU

Once these data are available on a routine basis, the magic of the spreadsheet will then easily allow you to rank your customers, suppliers, sales reps and SKU’s in descending order of margin contribution. Voila. You have all you need to dramatically improve your business. All you have to do is draw a line at the bottom 5-10-25% percent of the customers, suppliers, sales representatives and/or SKU’s and resolve to cut out unproductive elements in your operations. You draw the line where the numbers indicate you don’t get an acceptable return for your resource commitment. Let the numbers do the (hard) work for you and cut out the dead wood, religiously and periodically.

Keep in mind that poorly performing customers, suppliers, sales reps and SKU’s are a drag on your financial performance, your operating efficiency and your working capital. Since Cash is King, put it to work where it is appreciated and provides a handsome return.

Not doing anything about below par performance on the part of customers, suppliers, sales reps or SKU’s will quickly become demotivating to those who do perform and will not go unnoticed by the marketplace and employees. It will create a culture of the wrong kind in and around your business.

Growth is a vital part of business, but it also can be a cancer if it becomes growth for growth’ sake. If growth is top-line oriented without regard to the contribution it delivers to the bottom-line it serves no good long term purpose. Sometimes it is better to pull back from top-line growth by taking out the undesirables. It may turn out that firing your bottom 25 customers, terminating your under performing suppliers, killing your under performing SKU’s and dismissing your under performing sales representative(s), is the best thing you could do for your business! 

Just make sure that your information systems let you know with precision which ones to cut.