When you are starting up in business you may think that any customer is a good customer.
However, as time goes by and you start to grow you will find that some customers are better to work with than others.
Following are examples of types of customers I would advise my Clients to consider if they should continue to do business with, and on what terms:
1. The Wheeler-Dealer
They want to negotiate everything, expecting discounts, special delivery, different packaging, extended payment terms. Getting the order can be exhausting and then they will look for the slightest reason to delay or not pay.
Either you need to push back hard or they will drain you of profit and enthusiasm.
2. The Hollywood Star
They talk an amazing game plan and may even have an impressive track record.
You will be invited to shine with them and participate in their great project which offers incredible riches.
Unfortunately small things like paying you on time may not be part of the plan. Stars that rise quickly can just as easily crash and burn.
Keep in touch with reality, get everything in writing.
3. The Big Dog
Everyone wants to do business with them and say a Fortune 500 company, or XYZ, is a client.
They have shown the world what a great company they are and have wonderful data for customer and employee satisfaction. However, supplier satisfaction data is not so readily available. They set the rules and if you don’t like them there are lots of others willing to cut their margins and bend to their demands. You may find most of your time and capacity is used on ‘The Big Dog’ and not much is left for your other customers.
Make sure you don’t try to bite off more than you can chew.
4. The Little Fish
They may have been your ‘bread and butter’ but there comes a time when the bread is cut very thin and there is only a smear of margarine.
If you look at the cost of servicing small orders it can be frightening since there are both fixed and variable costs. An example of fixed cost for a non-automated warehouse is it usually costs the same to go and stock pick one item or ten – starting the fork lift, going to the location, picking the items, taking them to the packing area, etc, etc. The variable cost might be the actual shipping which is based on weight or size. Because of the fixed element small orders can be ‘below zero’, meaning you make a loss on them.
Overall if you have a mixture of order sizes these ‘below zero’ sales can be tolerated, however if margins start to decline minimum order levels may have to be introduced. This has to be done intelligently so that you don’t lose these loyal customers.
If you want healthy growth you need good customers who are also achieving healthy growth.
You have to look at not just how good a customer has been in the past and is in the present, but also their future potential and adjust your business model as needed.
Remember that a Client has to be profitable on paper and on the emotional scale because no business can survive if the leader is burned out and can’t think strategically about the future!
