Sometimes, in a recession, the best way to increase profitability is to fire your own customers.
I’ve been hearing from a few vendors and agencies, that they’re letting go of their least wanted clients. Why? During a recession, vendors are focused on being efficient with all resources, and in some cases, some clients are net negative in time, energy, resources, and morale.
Some clients are net negative
There’s a rule-of-thumb in the business realm that 20% of your customers will comprise of 80% of your total revenues. If that model is true, then likely the inverse holds truth: the bottom 20% of your clients account for 80% of all of your resource spend.
This is exactly what I heard from a recent agency I met with, they strategically decided to get rid of the bottom fifth of their client base. Why? The costs require to service some high touch clients that increase scope creep, are cheap in the invoice, shop around beyond reason, and even cause emotional abuse to account managers made it ‘net negative’. It makes sense, especially with the account manager abuse, right? What would you rather lose, a client or a dedicated employee, and risks of damage to morale?
So which clients are most likely to get canned by their vendors? Often times top name brands feel they can tout their reputation in hopes of getting business from vendors at the lowest cost –yet expecting the highest service. Having worked in the banking industry for a short time, I know that vendor management often has it’s own department that scours the market to ensure the company is getting the best deal.
Social media vendors at risk for unpaid education services
In the social media space, (which I cover) I’ve been hearing of some brands requiring extensive education from vendors. From full strategy days (non paid), non-stop Q&A in email and IM, and phone calls. While in such a nascent industry this is important, and key for a vendor to demonstrate ability, at some point, it crosses the ‘greasing the skids’ to being a complete ‘time sink’ –especially if the vendor isn’t charging for it’s hard earned knowledge in formal education offerings.
Vendors should analyze their customer base
Vendors, now more than ever, are starting to evaluate how to cut costs, and perhaps the first place to look is finding the resource sink that’s taking up the organizations time, resources –and willpower and focus on the higher value clients. A few considerations:
- Evaluate the clients that you have that are net negative –is the long term gain worth it?
- Could you better allocate your resources to increasing growth in premium value clients
- How could your staff be better spending their time?
- Often, companies purge their employee base to ensure quality talent, can you do the same for clients?
Buyers should partner with vendors
Brands, who don’t want to be stuck in the costly multi-month RFP, vendor evaluation, negotiation, and paperwork process should take in the following considerations:
- Are you exceeding the scope of the original requirements of the agreement?
- Is your team calling in special favors on a consistent basis?
- Do you consider your vendor a long term partner and have made that clear?
- Is your team getting proper education from folks who specialize on new topics? Or are you unrealistically expecting them to hand hold you beyond profitability?
- Having an unhappy vendor will ultimately impact your quality of service –and folks in any industry talk amongst themselves.
Business relationships are two-way
In the end, we should all remember that these business transactions go both ways, and the relationships will sever when both sides aren’t met. In my predictions of the future of the social web, it’s possible that buyers (and vendors) could rate their relationships with brands –and even individual stakeholders, if that comes about, it could cause a shift in power from buyer to seller.
Would love to hear stories from you all about when vendors have fired their own clients, I ask however, please keep specific brands names out of the comments.
The above is a good reminder that not all clients are good ones (even if they pay their bills). Focusing tightly on differentiation, on targeting those who can build your business is smarter in the intermediate and longer terms.
I’ve fired clients – recently, even in this economy – and in both cases, it was ethics that made the decision for me. Regardless of the state of the economy, when clients do things that show their characters to be incompatible with your own core beliefs, your gut tells you what to do.
great post! as i write this, we are contemplating firing one of our top two clients. it’s a huge client. you see the logo every day. we fought hard to win it and keep it. we’re proud to have it. but the objectives and people in place at the client when we pitched and won the business are no longer in the equation.
they’ve all been laid off or transferred. entire client-side departments have turned over within months.
middle managers at large organizations — the people who got things done — are gone. halls at the clients are empty. desks and cubicles are vacant. what’s left are overworked top management, beancounters, attorneys, very junior (translation: inexpensive) 20-somethings, and dazed company veterans who have been shell-gamed in from other departments. they don’t trust vendors, they don’t trust each other. everyone’s a lone ranger, one paycheck away from insolvency.
like most vendors, we really care about our clients (the individuals and the enterprises) and sincerely want to help them be successful. we are constantly in the teaching mode, and constantly wondering if the “complimentary” one-day seminars and cheerful 24/7 blackberry availability will ever pay off.
as i watch our clients struggle, i truly believe that their lives are much worse than ours. yes, we could “out” the bad ones…but would it matter? our clients today will be laid off or transferred elsewhere by next month.
In a small agency clients often latch on to one of the principals, refusing to make decisions or move work forward through other team members who they perceive as being too junior. We have fired clients that fell into this category because the ensuing bottleneck has impeded the agency’s ability to grow and provide good service, as well as those that habitually treated our project managers badly. This type of treatment is terrible for morale particularly when you’re grooming people to take on more management responsibility.
To make the process truly meaningful, we would often have the project manager do the firing – of course this was only when we knew that the project manager was doing a great job and that the client was habitually out of line. We’d work with them on their letting-you-go speech, and on the reasons that they would give, focusing on growing evidence that we as a company were no longer a good fit for the client and their needs. The project manager would then let the client know that one of the principals was available to discuss the matter, but that they would be the one wrapping up loose ends and providing copies of final materials.
Our team members that experienced this process changed measurably – the fact that their employer believed in them enough to cull out bad business relationships was a huge motivator and led to even more buy-in by staff.
It was amazing how virtually all of these clients (3 in total over the years) would then beg to stay – dreading the effort required to search for a new service provider.