Corporate Focus

You have too many customers. Lose some of them.

Or should I say, “You have too many bad customers. Lose some of them.” If you’re not making enough money, it’s the fault of your bottom quarter of customers. If you’re too busy to think, and you’re being run ragged, it’s the fault of your bottom quarter of customers. If you’re constantly putting out fires, it’s the fault of the bottom quarter of customers.

Try this: Sort all your customers by average gross profit percentage over the past year. Put that on the Y axis of a graph. Then rank them on how much you like working with them. Put that on the X axis of the same graph. The ranking of how much you like working with them will vary according to personal preferences. Include, and weight appropriately, other factors such as:

Responsiveness. Do they return your phone calls as fast as you return theirs?

Win/win. Is it always one-sided with them, or do they let you come out ahead too?

Sense of humor. Can they laugh at things that are out of both of your controls?

Fairness. Do they compromise when appropriate, and hold their ground when appropriate?

Planning. Are things always a rush?

Adaptability. Can they change course when necessary?

Payment. Do they pay promptly and fully?

Neediness. Does it seem like they always take twice as much of your time and attention as other customers?

Whatever else is important to you, add to the pile, and weight appropriately.

Your graph of gross profit percentage versus likeability will divide your customers into four quadrants. The upper left is the high profit clients that you like working with. The bottom right is the low profit clients that you dislike and take a lot of your time and pay slowly. The other two quadrants are those in-between.

The next time you give a price to the bottom right quadrant, increase the price by 20%. Either you will move them up to the higher profit quadrant and they will still be a pain, or they will go away, and you can spend more time with the ones you like, up in quadrant 1, the land of friendly, well-prepared, willing clients who allow you to make a good profit.

The importance of a written corporate strategy

A strategy statement is the compass for the company when making tough decisions. It’s not a planning document, but it helps to point the way when planning. A written strategy statement can redirect you when the company starts to get off course, or considers a large purchase or change of direction.

A company I knew was doing well in the water efficiency business, and was a leader in the area, but over the years that I watched, the owner got involved with a hardware store, a health club subscription service, a pool cleaning service, and finally bought a heater repair company. He knew that the water efficiency business was very profitable, he had good customers, regularly won contracts at good margins even though he was the higher bid, and knew where more jobs were to be found, but he had no preset course for where his company would go, so when a good looking opportunity fell at his feet, he picked it up. Of course his core business of water efficiency suffered. He didn’t fully develop his market, and lost good people because they became frustrated with his lack of support for their part of the business.

Another company I knew started with the strategy of buying many smaller businesses in the same space around the country until the overall company was large enough to sell to one of their customers as a stand-alone business unit allowing the customer to not subcontract the work. They bought a few small companies, then found a large one that was nationwide and had a complementary customer base to theirs. They were able to meet their goal of growth by acquisition in one purchase. Their stated goal as they completed the purchase was to grow sales of all the parts of the business for a year, and sell the combined company as quickly as possible, taking advantage of positive economic and market factors. They didn’t have it written down though, and quickly fell into trying to integrate all the companies. Integration took the attention of the heads of each of the companies, the accounting teams, the purchasing groups, IT, HR, salespeople, and the operations groups. Costs went up as new software was purchased, guidebooks were published, and people went to retreats to discuss the organization of the integrated company. Revenues and gross profits went down because the management core’s attention was away from the customer. They didn’t meet their goals, and now have to wait another year or two before they can show the revenue and profitability they need to complete their plan, assuming they haven’t missed the window altogether. There was no document that they could look at when integration was first mentioned that would allow them to ask the question, “Is this within our strategy?”

When we started our company in 2005, we had a clear strategy. First and foremost, we were an energy efficient lighting company. Secondly, we knew that we were able to deliver better quality design and installation than our competitors, so we wanted to have repeat customers who could learn by using another contractor and then be able to come back to us, so we actively pursued energy general contractors (ESCOs) as customers. We didn’t want extensive travel, so we set boundaries outside of which we wouldn’t actively pursue work. We wanted to respect our field workers instead of treating them like interchangeable parts. We wanted partnerships with our suppliers and subcontractors. We wanted a win-win relationship with our employees, suppliers, and customers, and we wanted to have fun at work. Finally, we wanted to sell the company within fifteen years, and worked to get it in shape from day one to be sold.

Over the years, we turned down opportunities to get into the solar business and the water meter business. We turned down a multimillion square foot building in Washington DC because of the travel it would have entailed. Many of our field workers own houses, in California, and all have large 401k balances because of the matching and profit sharing bonuses. We started looking for a buyer in 2012, and finally completed the sale in 2017. There were many opportunities to stray from our strategy, but we kept looking at the written document, deciding it still made sense, and using it to guide our decision making.

What is Effective Selling NOT?

Effective selling is not bringing and giving.

If you’re bringing a brochure to your customer, and giving it to them, you’re not selling effectively. If you’re showing up to a selling interview, and talking about how great your company is and what you can do for the customer, and how you will do it, you’re not selling effectively. If your customer knows your features and benefits and you don’t know ten times more about their operations, you’re not selling effectively. If your customer knows what your plant looks like, you’re not selling effectively. If you’re giving a PowerPoint to sell, you’re not selling effectively. If you’re bringing three people to a sales interview, you’re not selling effectively. If you’re the one doing most of the talking, you’re not selling effectively.