The most common question that sales teams raise with me, is how they should deal with their least profitable and most difficult customers.
The simple answer I give is that all healthy businesses should aim to shed at least 5% of their “worst” turnover each year, if not significantly more, and replace it with better business from higher value customers.
If that sounds unrealistic then you’ve a serious problem generating new business, and you may already be in the early stages of a doom loop.
A doom loop begins when you start spending time and energy chasing low margin business to hit targets, fill quotas or maintain production. It leads to permanently lowered prices and thinner operating margins. If that sounds familiar, it’s time to step back and see the bigger picture.
The ability to walk away from the wrong type of business is the most important of all of the ten essentials for profitable selling. And the way to create this ability is by fully committing to an active strategy of growing and churning your customer base, concentrating all of your resources on building new and more profitable relationships, and not diluting your efforts chasing low value customers.
As these “higher value” relationships start to build, they provide you with the headroom to tackle your “worst customers” in one of three ways: cutting services, pushing price, or ultimately walking away.
BOTTOM LINE: Not all business is good business, and it’s easy for sales teams to get so wrapped up in retaining current customers and hitting short term targets that they don’t stop to think about where your long-term profit growth will come from.
Only by concentrating all of your efforts on building your most profitable relationships, will you ever create the headroom you need to tackle your least profitable ones.