Tag Archives: insolvency

Dump your BAD Customers

Today, at a breakfast talk in Bracknell hosted by Mentor Group, Nick Ayton spoke about the challenges facing senior management in this recession. If you are under the age of 45, you will have been hired in a bear market and have no management experience within a bull period. In fact you have to go back two and three decades to find some experiences to draw upon.  Most CFO’s feel their CEO’s are ill-equipped to handle the challenge, and most organizations are still in denial.  What Ayton is seeing in board rooms is paralysis.

Worrying though this may, he offered some very useful pointers to help improve a company’s survival odds.  One was to dump bad customers.  Peppers and Rogers did extensive work in this area beginning in the mid nineties, getting clients to look at the lifetime value of customers, the return that customers generated and your share of their wallet.  A corollary of this is you need to dump low profit, high cost customers.  To me, this suggests you first need to identify what constitutes a bad customer – and  Ayton would argue in today’s climate you need to widen your criteria looking at EBIDT and revenue.  I say there are lots of ways to dump a bad customer without hurting your volumes and without increasing your risk, ways that put your company in a better recovery position. First what is a bad customer?

Dead Duck
A dead duck account is a term used by Ayton to describe any customer in a sector that is beleaguered.  All sectors are affected by the credit crunch, but some are being particularly hard hit. An example is the automotive  parts market where a significant number of suppliers are bankrupt. 

Toxic Account
My term and it covers any customer that used to pay in 30 to 60 days who has now stretched to 90.  They are using you instead of the bank and harming your cash flow. Worse, they could be an imminent bad debt.

Sucker Fish
Again, my term for any account whose cost to service (selling + aftercare + backoffice) is so high that now they are an unprofitable account.

Walking Disaster
A customer, and you probably have a few of these, who is all of the above.

What is a bad customer for you, may be a good customer for one of your customers, an account that can serviced through a lower cost route.  You may not have the industry expertise or focus to offer a profitable custom solution.  You may not have the processes needed to meet that customer’s needs or buying habits and it may not be profitable to change your processes.  For these accounts, you need to move them quickly to a route with lower overheads if you want to keep profits in line with volumes.  The obvious choices are to move them to lower cost inside sales positions, to web transactions or to indirect, more flexible channel partners who can get closer to the customer.

Secondly, what is a bad customer for you, may be a bad customer for your competitors.  Only you know the true cost of servicing your bad customer.  By the time your competitor discovers the true cost of servicing that account, you will have grabbed share elsewhere.

If you can recognize bad customers immediately and move them to a different route to market – or your competitor, you will improve your chances of surviving this crunch.


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