…all good things must come to an end.Geoffrey Chaucer
Sunday, 6 April 2014
Billy’s Twenty-first Law: No customer is forever!
I was in my local pub, talking about business to my friend Kurt. We were discussing business in general when he made the point that in his experience as a tool & die maker; any customer lasting for over five years was a rarity. As business owners, we may provide the best in products and services, and think we are meeting our customers’ need while failing to realize that needs change…and customer/supplier needs change with them.
I remember my first customer. I did a proposal for a client and he wanted to know if I would be the trainer. The Business Development Bank, for whom I worked, was moving to a contract model. Instead of the bank employees providing training, we would find trainers, and then contract the work to outside parties. The client had no interest in this arrangement, and wanted to know if I would personally do the training personally. My business was born.
About three years later, the relationship ended. The organization in question decided that they should take their training in-house. I was devastated as this was my main consistent bread and butter client. I had some tough months, and then landed a government contract that lasted several years.
The point is that nothing lasts forever. You didn’t necessarily do anything wrong, but if often feels as if you did. Things change…and those changes affect our businesses.
There is another side to this coin, and that is ‘de-marketing’. That is the idea of dropping a client. Just as our client’s change, so to do our businesses. One of the exercises I perform in the planning process is a customer analysis. This works especially well in business-to-business situations. The first step is to rank the customers by revenue, and determine how dependant the client is on their top customers. We then take the number of clients to attain 80% of total revenue and rate each one. (It is remarkable how often the Pareto Principal holds, where 20% of the client base accounts for 80% of total revenue.)
We then rate these important customers on the following basis:
· Collection Period
· Risk (i.e. how much waste or how many returns for quality issues)
· PITA factor (That’s Pain In The A**)
As a group, we ask the question, “Is our company better off with these customers?” It is amazing how many customers are not worth keeping. They are no longer profitable, or they pay so slowly that they are destroying our cash flow.
One of my clients was transitioning from a customer fab shop to a small run manufacturer. Smaller clients caused huge delays in the production process due to the set-up time between jobs. A $1,000 job caused delays in $10,000 jobs. We had to take the counterintuitive measure of ‘de-marketing’ several smaller clients. When we looked at the business, we needed to realize that the environment and the enterprise had chanted. Acting like a small fab shop was hurting the business and not adding value.
Things change. You will go through patches where you are losing clients instead of gaining them. Marketing is always important, no matter how busy you are. To quote a former boss of mine (Dave Forsythe of the Business Development Bank of Canada)
“You don’t get smart overnight and you don’t get stupid overnight.”
Great perspective from a good boss. Thanks Dave!