The Value of Firing (bad) Customers.
The person who wrote “the customer is always right” was referring to the golden rule of salesmanship; “to avoid arguing with a customer at all cost”. Behind every customer complaint is another order waiting to happen, the key is practicing the proper method leading to the follow up orders; (Spoiler Alert!) the subject for my next article.
Today, we are going to define the difference between a good customer and a bad customer. You may be thinking this seems oblivious, au contraire, as evidence displayed by most vendors and suppliers agonizing and going overboard to satisfy the demands of bad customers while missing opportunities to build their business by properly taking care of the good customers. A sure fire way to lose your good customers.
Taken literally, the customer is always right, is at the very least inconsistent. All customers are human beings; therefore pray to all the human frailties. They will avoid paying their bills in a timely fashion, we all have fallen victim to this trap. Think about how many times you pushed out your invoices from suppliers you knew would tolerate late payments. Try it with a gas and electric company and you will be sitting in the dark under a blanket. Bad customers will take advantage of your good will and make unreasonable demands while expecting the lowest price. They are dishonest in their approach: pitting different suppliers against each other with different sets of specifications. Bad customers expect “a dollar song while only willing to put a nickel in the machine.” Bad customers miss the value and benefits while focusing on imperfections within the Buyer / Supplier Process.
When a supplier accepts an order, he knows he is entering into a legally binding contract where the party of the first part (the customer) agrees to purchase products or services designed to meet or exceed the specifications as outlined by the supplier; delivered on an agreed upon date. The supplier expects the customer to uphold their end of the contract and adhere to the agreed-upon payment terms as stated in the contract.
Customers: the Good versus the Bad
This symbiotic process can range from fairly simple to extremely complex; depending on the size of the purchase and demands of both parties. The simplest version, Retail Sales: the process of immediate cash and instant delivery; to the largest: Corporate Mergers.
Let’s now define a good or great customer. A great customer understands they are entering into a contract agreement with responsibilities on their end. The most important is adhering to the agreed-upon terms and paying their invoices on time. When things fall into the unsatisfied side of the deal, the good customer remains cool, calm, and collected while explaining to the supplier the reasons why they are unsatisfied, and offering suggestions on how the matter can get resolved. This process takes place before any “bad mouthing,” or reports are sent to better business authorities. This action gives the supplier a good and fair chance to make it right! It has been my experience most suppliers will do the right thing to make customers happy. Finally, and just as important, as a great customer, when you have found a great supplier, help them grow their business! Speak well of them, brag to all your colleagues, friends and relatives how happy you are with their service. This helps the supplier stay in business, continuing to meet your demands for new purchases, maintaining your account and is ready to make repairs upon request.
Now, with an established understanding of the differences between a good customer and a bad customer, it is time to do yourself a big favor and fire the bad ones.
What, you say? They are still my customers!
In fact, they are your bad customers! How does one go about firing their bad customers? Begin by taking the following steps. 1. Make a list of all the late-paying customers. 2. Craft a tactfully-written letter explaining the new company policy stating all customers must adhere to terms of purchase and due to their past history, you must now have a credit card on file to ensure timely payment. Include a statement of your understanding how they may choose to do business elsewhere and list other suppliers who may be able to do business with them. Yes! Give your bad customers to your competition. It sounds almost cruel-let your competition deal with all their craziness along with any consistently-late invoice payments.
When my clients hear my suggestions to fire their bad customers, owners and account managers begin to Freak. Out. They have to be talked down off the ledge. “Just breathe,” I say. “Take a breath and think about it for a minute.” First and foremost, I remind them that this is not my first rodeo, and this profit generating technique has been proven successful on many occasions. The phrase ‘Profit Generating’ usually catches their attention and they want me to demonstrate how it works. When a supplier fires their bad customers or offers solutions (as suggested above) to help them become good customers, they will be surprised how much time will open up to go after the good accounts – the ones you have been planning on and had difficulty finding the time to engage! Suddenly there’s more time to brainstorm for creative, innovative ideas to increase sales with your good customers! Keep this in mind: chasing after past due accounts, consistently from the same customers, cuts into your profit margins. It’s one of several hidden costs eroding your margins!
I just went through this exercise with a client who had five “bad customers” on his list. As suggested, letters went out explaining terms of payment and how they could obtain a Customer in Good Standing rating. Three of them decided to take advantage of the opportunity to become good customers and agreed to company invoicing terms and an increase in rates. My client had been hesitant to increase prices due to fear of losing any customer. But remember, these were bad customers! And after some quick calculations, it was revealed that almost every engagement with the five bad customers resulted in a loss. Goodbye and good riddance! Time to go engage some new accounts!
For my final anecdote, I once purchased a car. After a while, it became time to purchase another car so I returned to the same dealer. We have an excellent business relationship. We agreed upon a price, he thought for a minute and without my asking for a discount, offered me a better deal on the same car. We stood up, exchanged a hearty handshake and he said “Thank you for being a good customer, I appreciate all the business you have sent our way over the years.” It was a win-win for both of us!
James Cendoma has decades of experience as a customer, supplier, guest speaker, and entrepreneur. He has worked in manufacturing industries and sales all over the northeast. Author of the book Pep – Profit and Extreme Performance, he focuses on helping clients achieve their best practice success through troubleshooting, sales coaching, networking, and consulting. Contact him at [email protected]