Most businesses view customer satisfaction as an important indicator of their success. Customers that are happy with the service that your business provides are more likely to be retained, which translates as future income. They are also more likely to generate positive word of mouth that can encourage other customers. This has led to many service based businesses adopting the notion that “the customer is always right.” But what happens if the costs of keeping a customer satisfied outweigh the benefits that you receive in retaining them? What if meeting their needs affects the morale of your employees? If “the customer is always right” does this, then mean that your staff and business are “always wrong?” Or…
Is there such a thing as bad business?
Cost vs Benefit
It is important to note that although a customer may be difficult, there are many reasons why a business will choose to retain them. For example, they may be a large client that provides your company with a base-load of business, covering much of your overheads and headcount. Or perhaps they possess valuable industry connections that are a gateway for the growth of your business. Or it may be that they are already paying a high premium and are therefore one of your most profitable clients (at least on paper). There are a lot of other issues to consider before choosing to reject dealings with an otherwise difficult client.
Searching for and acquiring new customers can also be costly. It could require you to amend your current marketing strategies in order to attract customers away from your opposition, and will often result in an increase to your marketing expenditure. Remember:
"…it’s much cheaper selling over and over to customers you already sold to once
than persuading brand new people to buy for the first time"
Therefore, a company should be focussed on the complete benefits that a particular customer provides, rather than just the revenue they generate.
Customers who don’t value your time
In the world of business “time is money”; this is especially so for businesses that are service providers. Therefore, clients who don’t value your time can slowly erode your profitability. For example, if you have a client that continually doesn’t show up for prearranged meetings, not only can this be frustrating, but it has an opportunity cost. If this time is billable, then it isn’t such a big issue. However, if you provide set packages for customers, then they can start to become expensive to keep.
Often, such issues can be resolved by reiterating your availability to your client, increasing their awareness for the job that you do, or renegotiating your terms. Even if a customer continually takes your time for granted, it is not an indicator to cease your business relationship, but it should be a trigger for you to re-evaluate your scope of work or contractual agreements with them.
Those who don’t pay on time
Cash flow is a very real issue for many small businesses. It is one of the top reasons why small businesses fail2 and it doesn’t necessarily mean that the business isn’t profitable. If a business can’t convert its sales into money in a timely way, then it will struggle.
There are also hidden, or additional costs that can flow on from late payments. Overdrawn accounts, additional expenditure to recoup money, debt financing and interest expenses are just some of the additional cost that can be accrued.
A good customer pays on time.
Sometimes there are extenuating circumstances or exceptions that can be made for genuine clients that may allow them an extended due date, or even a discount. But they will always meet their obligations. If you find that a customer is continually paying their accounts late or failing to pay, then this should be addressed.
Further analysis should be done to determine the impact that late payments have on your business. An effective Accounts Receivable system should be implemented in order to track and manage receivables. Aged debtors should be contacted on a regular basis to ensure there are no other issues affecting payment. Customer credit ratings should also be analysed before offering them credit terms.
Those that continually want something for free
Everyone likes to feel as though they have received a good deal or value for money. Offering discounts or items for free can be a way to promote your business to new customers or to increase customer loyalty. However, offering a customer a cheaper price, or providing them with a free service comes at a cost to your business. If you continually provide these types of incentives to a customer, then they lose their impact and become an expectation.
A customer should value the service that you provide to them enough to be content with the fees that you charge. Occasional incentives are great, but they shouldn’t become integral to retaining the customer.
Bad business does exist. But it is not necessarily the sole fault of the client. Sometimes it is a result of a misunderstanding between the expectations of the customer and the supplier. A business may need to review their policies and procedures to change the way they tackle problematic clients. If a customer has been identified as “difficult” there are many other factors that should be taken into account when analysing if they are worthwhile retaining. System(s) to track and measure key parameters that are important to your business should be implemented, to guide the decision-making process and strategy in dealing with problematic clients.
Often it is not the company that makes the decision on whether a customer stays or goes. But if the cost of keeping that customer far outweighs the benefits received, both financial and otherwise, then it may be time to review the relationship.
The BAS Agency
We are a is a Perth based business and Registered BAS Agent that provides quality bookkeeping and financial training on a face to face basis to the whole of Australia. By utilizing a combination of personal visits, and various remote and cloud based services we can complete your accounts at our place or yours. We use all the main accounting packages including Xero, MYOB, Quickbooks and Reckon.
At the BAS Agency, we utilise the latest communication tools to ensure that we complete your accounts while still retaining that personal touch. It is essential to us that we maintain an ongoing business relationship with all of our clients that helps you best manage your finances on a daily basis.
We have serviced a large number of clients whose needs range from requiring our full time attention to quarterly assistance. Every one of our clients is important to us and that is why we enjoy helping them take care of business
Don’t hesitate to contact us for more information:
Tel: (08) 9243 0681