Here’s some analysis you need to do before you decide to dethrone the king! As a small business owner, the decision to sack a customer/ client becomes critical, especially because the customer would most likely be contributing to the top line of your organization. Moreover, in an age where customer is king, discontinuing work with one might not even seem like an option.
However, an entrepreneur still needs to make a rational choice to either continue or discontinue working with a client. This can make all the difference to your profitability. It is of course imperative to work towards a healthy business relationship, which is mutually beneficial, in spite of all the odds. But, when all your efforts to build the relationship fail, then as a small business operator, you may need to answer some tough questions. Below are few scenarios that help understand situations better and make an informed decision.
Does the client pay on time?
It stops making business sense, if you have to constantly deploy time, efforts and resources on a customer when previous bills still need to be cleared. Ask yourself these questions when it comes to perpetually pending bills.
• Does this affect my capital investment for other customers?
• Do I have to spend additional time and money to follow up on pending payments?
• Does the customer’s cash trap story seem too hard to believe?
• Does the client or customer have a reputation for treating all vendors the same way? If the answers to most of the above questions is a “yes,” then you might want to think twice about continuing this relationship. Be cautious about any further dealings. Try and reason with this client and make him/her understand your predicament. Send reminders and follow-ups to the client regarding. Then, sit back and evaluate the relation on these parameters.
Is the client reasonable in bargains?
Some clients tend to be unreasonable in terms of negotiating when it comes to time and money. Do these bargains eat into your margins or have grave effects on the team. Constantly giving in to unreasonable bargains will adversely affect business and manpower. Discuss such issues with your client and remember, if you are good at something, never do it for free or for cheap.
Is it a profitable proposition?
It is time to sit back and evaluate if the business has decent margins or if it is a drain on your resources. Sometimes an over demanding customer can capitalise on business resources beyond the scope of work and this will affect the bottom-line and eventually other customers too. Also analyse if the merit of the relationship is justifiable. Does your client add a strong the brand value to your business?
Does the client refer?
Word of mouth marketing is the most effective tools out there. You go out of your way to deliver great work to the customer and exceed expectations, but does this goodwill result in more business through referrals? For the outstanding work done at a competitive price and in spite of delayed payments, is the client referring you or the work done to others in his network. If the answer is ‘yes’, one can look at this relation as an investment.
Is the team happy?
Another important parameter to consider is the effect your client has on the team. Does your team seem out of breath working with this client or is the team morale suffering? If the team is disgruntled and has brought up a constant slew of issues with this customer/client, you might have to take a firm stance about continuing your association. In the end, a burnt out team may result in work suffering on other fronts too and this will ultimately have a negative impact on profitability.
After carefully evaluating these factors and questions, if you feel that there is no business sense working with this client, you may have to part ways. However, do not get into an exit mind-set immediately. This can have serious business implications not just financially, but reputation could also be at stake if it is not handled tactfully. It is highly advised that situations are evaluated in 360 degrees before arriving at conclusions. Remember to leave on a high and to part ways on a good note.