And are you reluctant to fire the customer because you need the volume? What I call Vampire customers are one of the biggest reasons why a good top line turns into a mediocre bottom line, so let’s continue with our April theme of Bottom Line Growth.
Whenever I speak with managers, most admit to having two problems. They can all name their biggest customers by revenue, and instinctively know that some of their customers are costing them more than they’re worth, but they don’t have a simple way to tell who’s who, and they’re understandably reluctant to fire customers who may be providing much needed volume. So they stay trapped. And it’s a bigger issue than most companies realize. When I work with them on a simple way to determine who the vampire customers are that has nothing to do with conventional accounting approaches, we often find that as many as 40% of their customers are costing them more than they’re worth. What’s even more interesting is that the vast majority of customers become Vampires not because of their own bad behavior, but because of errors on the company’s side. Pricing at an unsustainably low level to get the business. Being over-generous on terms. Over-servicing. Not catching and correcting bad behavior such as late payment early, and allowing it to become standard practice. All of those mistakes are within your ability to address, once you spot them.
Then there are the Vampire customers where changes are needed on both sides. Have you ever known someone who was divorced? Well, if they started out in love, it’s a lot like the situation you have with your vampire customers. When we first start doing business with a customer, everything is great. Overtime, tensions build up. The customer may become too demanding. We might bend over backwards. There may be other “bad behaviours”, with the customer playing two vendors off on price, rather than negotiating in good faith. There may be payment issues. And before long, the promising relationship has soured and we want out.
Well, sometimes all that’s required is a bit of “customer counselling”. Often customers know that they’re getting a deal that’s too good to be true, and are amenable to some candid conversations on the behaviors that need to happen if the relationship is to continue. Often changes can be made at our end to stop the costs of over-servicing. It’s all about meeting in the middle. And it has nothing to do with firing a customer, which should always be the absolute last resort.
One of the best things you can do in your business is to identify your Vampire customers and then kindly but firmly get proactive internally and with them, to eliminate the costs or mistakes that are the source.