April is Uncommon Ways to Grow Your Bottom Line (Starting Tomorrow) Month, so this month you’ll get great tips here on the blog to help you grow your bottom line. Why not sign up for ongoing updates over on the right hand side, while you’re here?
Right now, it’s the end of the first quarter. Is your bottom line where it needs to be? I often hear leaders bemoan the fact that even when they’re having a great year on the top line, there isn’t much left over for the bottom line. This year, I’m hearing a lot of “out of my control” reasons – the plunge in exchange rates, the fluctuations in oil prices, and the horrendous winter weather throughout most of the continent for the first quarter that disrupted buying patterns, delivery, and more.
Its time to take back control of your bottom line, and the first thing to do is to stop the bleeding. Here in Part I we’ll tackle one of the greatest sources of lost profits – what I call Vampire Customers – and in Part II next week, I’ll take you to a completely different area in your business for some triage. Check which of these apply:
Stop the Bleeding Part I – Checklist
___ Can you measure profit per customer below the gross-margin line?
___ Do you instinctively know that some customers are costing you more than they’re worth?
___ Do you have a proactive and finely-tuned strategy for restoring them to break-even or better before the all-else-fails approach of firing the customer?
___ Have you ever been on the receiving end of a social media backlash after terminating a customer, and do you have a strategy for dealing with that?
___ When you have to fire a customer, do they “feel fired” or is your approach so gracious that they thank you for it?
A landmark Harvard study found that simply eliminating the customers that are costing more than they’re worth can often add 100% back to the bottom line. What could you do in your business this year with that kind of impact? Let’s start to make it happen. Want all the gory details? Pick up a copy of my new book Profit in Plain Sight: The Five Principled Paths to Passion, Profit and Growth.
Measuring Profit Per Customer
Most companies can do a pretty good job figuring out customer profitability at the gross margin level, i.e. Revenue less Cost of Goods Sold. Many get mired in big, expensive, computing projects trying to allocate overhead costs when they try to measure bottom line profitability, and eventually abandon the effort. There’s a much easier way. Do you get paid up front and in full by your customers? Do you end up financing customers as your Receivables people chase them for payment? One is more profitable than the other. In any company, there’s usually about half a dozen observable behaviors that can give you a good-is-good-enough-for-good-decision-making level of insight into profitability, rather than an exact number, and that means you can quickly and easily take action and have bottom line impact. I recently workshopped this with a client in Atlanta in less than an afternoon, and once the salespeople had an AHA! Moment that the customers dragging them down were impacting the budgets for sales promotions and new product development, they got motivated in a hurry to try to bring those customers back on track. In some cases they said “there’s nothing to be done… we need to exit them gracefully.”
Create a Proactive Strategy
Do you know someone who’s been divorced? Was it ever really just one person’s fault? Guess what. Sometimes the reason you’re losing money on a customer is YOU, not them. I worked with an HR Recruiting firm who had landed a big, blue-chip customer. The terms of their agreement was to provide 3 candidates per position, but they routinely supplied 5. This customer was deep in the unprofitable zone… but it was a self-inflicted wound. So before you fire the customer, ask yourself who the cause of the problem is. If its you, make it right. And if its them, have the conversation. Sooner rather than later is always a better bet!
When All Else Fails, Fire the Customer Gracefully
Maybe it’s just them. They’re demanding, they pay late, they’re hard to get along with. And you’re fed up. Gently send them on over to your competition and let them bleed the red ink instead. There are SO many ways you can do this in a way whereby they make the choice to leave, rather than you firing them (regardless of how satisfying that may be). These days with social media, customers who are angry or feel abused have a world-wide platform to vent their spleen on you. So keep it friendly. Raise prices. Extend lead times. Have a heart to heart that conveys that you’re no longer a match, but that you won’t leave them in the lurch. You’ll be glad you did.
Your first step in stopping the bleeding is to get proactive with your Vampire Customers.
What’s your best advice for how to restore them to breakeven or better or exit them gracefully?