Most high-tech distribution and service supply chains are built around a small number of clients. These clients typically generate 80 percent (or more) of revenue — the classic 80/20 rule.
Rather than ignore the elephant in the room, it is important to be open about this, and to build a culture that acknowledges and addresses this reality. This will enable you to mitigate risk and also better manage time and resources within your company.
The first step is to build a culture of intellectually honesty. It is important for the entire company to acknowledge and to be open about the fact that the majority of revenue is generated from a small number of clients. This enables management to implement effective and appropriate risk and management structures to be put in place. Additionally, it empowers employees, because it allows employees to better understand why certain systems and structures have been established.
With respect to your big clients, you need to exceed their expectations and anticipate their needs. Just because you have a strong relationship with them, maybe even a relationship that has been in place for years, you never know what the future will bring. New management, an acquisition, merger… there are several events that could end the relationship.
Don't get lazy. Be proactive. Every time you pick up the phone to talk with the client or every time to you meet with them — impress. You need to know their strategy and know their needs — immediate, mid-, and long-term. It is also important to be open with the client. Let them know they are important to you. Ask them for feedback, listen, and be responsive — address their concerns in a timely fashion. Finally, follow up with the client to make sure they feel their concerns were addressed.
Many companies get in the trap of assigning a large number of employees to big clients. If the client terminates their relationship with you, you may be forced to lay off talent — good talent. Additionally, this type of structure is generally fraught with bureaucracy. Instead, assign a small, focused team to the client. This type of team will have fewer bureaucratic hurdles and will do far better than a bloated team that has to battle red tape. Furthermore, if you lose the client, you may be able to reallocate quality team members.
Regarding the smaller clients, it is important to have a defined and accountable process in place that evaluates why they are part of the 80 percent. If the client is not a good fit to your model, manage them out of your base. If they are a good fit, delight the client and treat them as if they were the big fish — you never know, one day they could be your biggest client.
Finally, it is essential to put a leader in charge of client acquisition. By putting someone in charge who understands your company culture, the business model, and the company needs, client acquisition will be more effective and more efficient.
What do you think? Share your thoughts below.
Good points, Frank. I particularly like your statement: If the client is not a good fit to your model, manage them out of your base. Sometimes moving away from business is the best thing you can do for your company and team. It's hard to do, but is sometimes the best plan of action.
Nothing's worse than a bad customer. You'll end up spending more time on them than the good customers. They're also usually the one's that turn around and give you the biggest headaches.
Oftentimes the customer base changes and before you know it your mix of customers is all skew whiff. You should always try to maintain the correct mix of customers to suit the business model but it can get out of control say when a product hits a home run with one particulalry big customer. Mond you this is a grat problem to have.
Frank, one thing I had noticed is big corporates have more than one preferred vendors for each domain/component set, so they won't care about the vendors. But when it comes to small and medium level companies, vendors and companies have a close relation and trust, up on which business are building up.
“Nothing's worse than a bad customer. You'll end up spending more time on them than the good customers. They're also usually the one's that turn around and give you the biggest headaches.”
Pocharle, am not getting about your phrase 'bad customer'. I won't think there is any special category like good or bad customers. Everybody wants business and profit, so based on dealings we have to adjust with them for maintaining a good relation.
“Bad customers” are the one's that you end up spending more time on that they bring you in revenue. I'm specifically referring to the one's that want the world for $0.15 on the dollar.
@pocharles: True but if you try to figure out why they are being categorized as bad customers then probably you can change them to good or reasonable customers even by spending some more time. If so I don't think it will be a bad investment at all.
Pocharle, if you are tagging such customers with “Bad customer” tag, then how they will do business. In such cases we have to interact with them in a different way and have to help them to come out from such situations. We used to follow such practices.
“if you try to figure out why they are being categorized as bad customers then probably you can change them to good or reasonable customers even by spending some more time. If so I don't think it will be a bad investment at all.”
Nimantha, one more thing is, if we are helping such customers for overcoming their difficulties, in future we can have some good relation and business with them, like preferred/loyal customers.
A nice article to get a basic understanding of how to run business with the clients. It is very important to approach the customer with open mind and be inquisitve bout their strategies. It will help to better understand the customer requiremnts in the long term.
The easiest way to have good Client support is developing a ground of trust, which is primarily done by providing the client with over the top services.
Good business cannot be done with clients unless the company provides useful strategies.
Sometimes a company hits a home run or two and the previous small company is now a major egg in your basket. Mind you this is a great problem to have I imagine.
As long as businessess exist, categorizing customers as good or bad will exist. What are bad customers really? Are they people who love to bargain and make sure they have the longer end of the rope? Small businesses do not bloom if their clients are the so called ''bad customers'' and especially when on a tight budget.
It's a tough situation to be in. No one wants 'bad' customers but in some cases, you finally come to the conclusion that it may be better off if you part ways. You can try the retention route to try and figure out why there's issues. Maybe it's a personnel issue? But you don't want to exhaust resources on one customer, especially if it doesn't pay.
'It is very important to approach the customer with open mind and be inquisitve bout their strategies'
elctrnx, you are right. Open mind approach is very important and this will helps the customers to start from scratch or from zeroined condition.
@FLYINGSCOT:
Even if a small firm becomes large the service must remain up to the mark. As a service provider you cannot differentiate in between small & large clients. So, if the service level stays constant there would be no issues.
@tirlapur:
I wouldn't say that they are bad customers. They are probably difficult customers who like to bargain more than the others. Bad customers are the ones' who end up delaying payments, creating nuisance over petty issues etc.
Even if the SMB's have these sort of clients they can manage them with lesser profits in the short run. The clientele actually encourages other bigger players to opt for a company.
@pocharle:
Parting ways with customers is a very difficult decision. The word of mouth effects business adversely. If you part ways with a customer and they spread rumours or leak the agreement details it would effect the upcoming business deals.
It is a tough decision but you must do it with professionalism & not burn any bridges. There must be agreeance from both sides or it just won't work out until the terms of the initial agreement is up, if there is one.
Yes, ideally that must be the case. However, in reality we often see/hear that these 'good-bye's' are not that smooth.
When a client evaluates his suppliers, how does he rank price and intrinsic areas? How much extra money is he willing to spend to stay with your company instead of going to the competition with a lower price? Does it always comes down to the numbers?
Very true
Mr. Roques:
That is a difficult question. A client evaluates many things before switching suppliers and one of them is the cost. The delivery times, delivery excellence, payment terms, past relationships etc everything matters. Switching is a difficult task because you are putting many things on stake.
@Syed: Yes but if they are not willing to switch let them be there with the old customer and face the risk. Its nothing that the other party can do. It's the customer who has to take the decision and the risk.