‘Satisfying customer needs at a profit makes a sustainable business’ doesn’t that sound familiar to you? However, when times are difficult, dealing with customer demands and wants, becomes undoubtedly tougher and more challenging.
In most businesses, there are some customers that are literally a ‘waste of time and resources’ since dealing with them costs companies more than the business they provide.
Unprofitable customers are those who never stop demanding and putting forward requests despite the quality of service and competitive pricing they receive.
They always and continually demand more, and if companies were to give in to a request or two, they expect even more. What’s worse is that they are consistently thinking of ways to demand more – your time, your resources – making them quite overwhelming and unsustainable.
They quickly become money wasting ‘tasks’ rather than the profitable prospects that they should be. Managing unprofitable customers then becomes extremely important.
Most often this is slow and not easily detectable but gets way out of control, leaving little time for companies to realise the gravity of the situation. Could you answer immediately, how many unprofitable customers you have? You probably don’t know. Herein lies the problem – your company is probably profitable and hence you are not ‘distracted’ by the unprofitable customers.
The fact is, you should be affected – undertake a due diligence for your company’s customers. You will probably be shocked by the high percentage of unprofitable customers that could be resulting in a loss to your company’s bottom-line and stunting the growth of your company.
These unprofitable customers are sponging off more resources of your company than they actually pay for. They make serious dents in the company’s ability to deal better with profitable customers.
These unprofitable customers come in different ‘varieties’ – some don’t pay their bills, some are so high on maintenance that the cost of keeping them is actually eating in to your profits, and yet others seem to be hanging around for the ‘freebies and discounts’ without high impact purchases.
The straightforward answer to such unprofitable customers is – weed them out, point them to the door, sever ties – however, you put it, the fact is they must be taken out of your ‘system’. Companies must remember however, to be cautious while ‘weeding’ out these unprofitable customers so as to avoid other incidental damages.
This could be in the form of your profitable customers wondering what happened and whether they would be shown the door next, and could make them move out to other companies to avoid this embarrassment.
Your competition would gain from this windfall and unfortunately for you, potential customers may also defect before they actually come your way.
To guard your business from such damage and to protect your reputation, it is vital that companies don’t chop off these unprofitable customers as soon as they start becoming so. Try providing information on the use of your product, have your customer service representatives talk with them to understand the exact nature of their ‘problems’.
If nothing helps then removing them should be resorted to, but must be done with respect and by communicating this decision to them face to face. It is possible that while trying to understand the reason for a customer turning unprofitable, you might discover ways to change them back to be profitable and also avoid any of those potential damages that were mentioned earlier. Some do’s and don’ts may help companies to better offload unprofitable customers. To make the best choice, ensure that you test the impact of your decisions with every case.
It is possible that a certain line of products are actually unprofitable and rather than getting rid of the customer who you feel is unprofitable, look at your own products first. Removing or tweaking the product line could be the ‘kick’ your profits need and also change the unprofitable customer to a profitable one.
A strategic and well-thought out approach would help maximise your profits. Chopping off ‘unprofitable customers’ is a tricky proposition, and ideally should be the last resort, and done only after all other unprofitable avenues have been adequately analysed.