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.