Have you ever worked in a business where one customer is viewed as the most important and precious to the company, who everyone treats with kid’s gloves? Yet this customer seemingly pays later than all the others, demands special terms, takes up all the managers’ and staff’s time and never seems satisfied?
When asking about how it works that one customer can seem to dominate a firm, the reply is often along the lines of, “they’re our longest serving customer” or, “they’re our biggest customer” or even “they’re a personal friend of the owner”.
Bottom line; is this customer adding to the growth and well-being of the firm or, actually detracting from it? This is particularly acute when a customer’s business represents greater than 40% of the overall turnover. This benchmark indicates that the customer has so much influence, in effect, it runs the business, not the owner.
For a SME it’s easy to accept large orders or, to grow on the back of one customer placing more businesses into a dangerous position. Indeed I’ve both been in a business where this has been the case and worked with clients in this position. The key point though is that if this large customer starts to dictate how your business operates, what markets it is in, what products it offers and then, crucially, pays late, then the business owner is in real trouble.
How to get out of this? In the short term, work towards educating the customer about the terms of business you want to have. Easier said than done you may say, yet when explaining what you want, need, and why, to many people, it often does produce the change you’re looking for. In the long term, work towards expanding your customer base and even, towards exiting doing business if desired. Again if a customer doesn’t pay on time, no matter what their size, are they really a customer? And how much time could be freed up to handle those that do pay with better margins? Remembering to work this plan in alternative customer sources and cutting of ties when the time is right for you.
In ActionCOACH we call this getting rid of ‘D’ Class customers (from grading all customers A to D). Therefore, review your customer base. Does your ‘best’ customer upon inspection really live up to this premise- or if you had a choice, you’d rather not to have taken the order and would prefer to have other customers?