Having paying customers is great; they’re good for your bottom line. But customers that require extra time and effort to manage can be a drain on your company’s resources (employee time, money, materials). This will most certainly have a negative effect on your bottom line.
It’s important to identify a good customer up front and politely turn down those who do not fit the bill. But it’s just as important to recognize an existing customer that is no longer a good customer and part ways.
Below are some tips on how to make sure you’re getting the right customers for your business and what to do if a right one turns wrong.
Match Corporate Values
Develop your company’s mission statement and core values and make sure they match those of your customers. It’s better to work with like-minded people and companies because difficulties and stress can arise when companies aren’t in sync.
For example, if your company advocates a “green” philosophy, working with people who aren’t as environmentally conscious could be difficult because you may find that they are resistant or may set up road blocks to your good ideas. Or if the customer is looking for fast and cheap but your corporate values stress high quality and therefore command a premium price, you may find yourself cutting corners and sacrificing quality to meet the customer’s demand for a lower price.
Learn to ask questions about how the prospective customer views their industry and how your product or service fits into it. Don’t try to be all things to all potential customers. Instead, be the best at what you do and look for those customers who will appreciate it and want to benefit from it.
Understand Expectations
Understand your customer’s needs and expectations and make sure they are in line with your company’s abilities. Taking on an order or project that is more complex or challenging than you have done before could be a recipe for disaster. If your company is unable to perform up to the expectations of the customer, you’ll have a very unhappy customer who may try to undercut your pricing or even worse, start publically criticizing your company and that may lead to loss of future customers.
Trying to work for someone who is too demanding or unreasonable and doesn’t truly understand that nature of your product or service can be very draining on your resources as well. Again, this can lead to unfavorable comments and a loss of future or existing customers.
One way to avoid making this mistake is to find out why the customer left a previous relationship if there was one. If they speak very harshly or critically about the prior company, it may be a sign that their expectations were too high and there was no way they could be satisfied.
Determine Financial Condition
Determine the customer’s financial strength and exact budget before you bid a job or project and make sure there’s room for unforeseen circumstances. A customer who doesn’t pay can become a financial burden on your company. And if you have more than one, well that could cause a catastrophe.
Make sure your customer has a full understanding of their own financial capabilities as well as the total cost of the job. Ask them if they have cash or will be financing a portion of the cost (either with you or another provider) and what happens if costs should run over.
If you’re dealing with other companies, have them fill out a credit application and provide current financial statements. Set a credit limit and stick to it. It’s not a good idea to advance credit with no limit. Especially for new customers.
Develop Criteria
Develop a list of criteria for what makes a good customer for your business then stick to it. If your industry is technology, you may want to make sure that your customers understand at least the basics or you may find that your employees are spending too much time answering questions and explaining simple procedures. If your business is customer service, make sure that your prospective customers also have a serious commitment to customer service.
Where applicable, work with only the best companies in the industry. Research them in advance of taking a meeting so that you know their strengths, weaknesses and reputation.
Mutual respect is important so make sure that your staff is providing the best customer service possible but also that the customer is treating you and your staff with respect. Customers that berate and criticize at every possible opportunity are no fun and probably not worth the effort.
Cut Loose a Bad Customer
Trying to make troublesome customers happy is a sure way to waste your company’s resources. It’s better to focus on what you do best and attracting customers who will be a good fit rather than continually stressing over a bad customer.
Be upfront with a difficult customer and let them know the impact they are having on your company. Propose solutions like changes in procedures or an increase in rates. But be ready to terminate the relationship if they don’t agree or don’t adhere to changes. Providing advance notice and offering support through the transition will help to maintain your credibility.
Review the payment history of your existing customers. If you find that any are habitually late and require additional time for collection, consider increasing your pricing to them or cutting them loose.
Yes, customers are the basis of every business. But not every customer may be right for your business. Being choosey about the customers you accept and retain will result in better relationships, happier customers and employees, and greater profitability. And that’s good business.