5 Reasons To Say "NO" To A Prospective Customer
As building service contractors, we are always looking for ways to grow our business. We want to scale up, increase our freedom, and build a great business. However, this desire can often make us think about nothing other than sales. We think that getting new business is the key and the details will get worked out later. However, to our own detriment, we forget to place boundaries around our sales process. We indiscriminately say “yes” to every opportunity that comes our way and sales soon becomes a barrier to future success.
As Michael Porter once said in a Harvard Business Review article, “Strategy is often more about learning when to say no.” I think Porter is exactly right. A carefully run organization should never be sacrificed on the alter of indiscriminate growth. While turning down business is painful (trust me, I know), it can be the best decision for your company. The obvious question you are asking is: “When do I say no?” Here are the 5 primary reasons to say NO to a prospective customer.
#1 - The Account Is Too Small
Every janitorial contractor that starts out must begin with smaller contracts. You initially don’t have the capital or the experience to start large projects, and small jobs are a great way to get your feet wet. However, it is difficult to build a large, scalable company with accounts like these. As you grow, you must begin saying NO to these smaller prospects. While the margins can be good, remember that smaller customers take just as much time/energy to service as large customers, sometimes even more. So for instance, a $500 customer boasting a 50% profit margin can sound good, but a $5,000 customer at 30% profit makes a lot more sense. The time/energy is the same in servicing the account but the actual profit dollar difference is significant. While you may be able to handle both for a period of time, you don’t ever want the smaller jobs hindering your ability to service larger, more profitable customers.
Now don’t get me wrong, these smaller customers need a good contractor to support them, but a smaller janitorial company is better suited to make that happen. If you truly want to scale up your company, you must institute a cutoff for smaller customers. For my company, that cutoff has changed over time. It used to be $500/month, then $750/month, and now it is at $1,500/month.
#2 – The Account Is Too Large
This one hurts! Sometimes an account is just too large for you to reasonably handle. Accounts that are too large can cause several problems for you. First, they can put a severe strain on your cash flow by forcing you to front large amounts of capital to get the job started. Remember, businesses don’t go under for lack of profitability, but lack of cash. Second, large jobs can put your company in a risky situation by having you over-leveraged with a single customer. I would never let one customer account for more than 30% of my business. Finally, accounts too large can tie up your resources and hinder your ability to service other customers well. In doing so, you will jeopardize your entire business for the sake of one customer. This is never a good idea.
#3 – The Account Is Too Far Away
Most of us have faced the decision of servicing an account just outside of our normal service territory. My rule of thumb is this: if you don’t plan to grow in that new area, then don’t pick up the account. Successfully managing accounts requires active and present management. When an account is more than an hour away, it can eat up nearly an entire day for a manager to make a stop. This not only pulls your manager away from other important accounts, but also makes him/her reluctant to visit this far-away new customer. If you are not careful, an account too far away can become a drain on your entire business. If you are not confident and excited to take on the new account, then don’t do it. Remember, smart & planned growth is better.
#4 – The Customer Only Cares About Price
This perhaps may be the toughest of all to deal with. We all know this type of customer. They only care about the bottom line. They switch contractors every two or three years in an effort to keep the price low. Somehow, we think we will be the exception to the rule, the contractor they will decide to keep for many years. But don’t be fooled, past action is the best predictor of the future. If a customer only cares about price and has a history of changing contractors, then stay away. You are looking for long-term relationships, not get-in, get out contracts. Here are a few hints that price is the only consideration:
The prospect has had 3 or more contractors in the last 5 years.
The prospect will not let you give an in-person sales presentation.
The prospect will not sign an agreement longer than one year.
The prospect does not care about quality control, partnership meetings, etc.
#5 – The Customer Type Doesn’t Fit
This final reason to say NO is not always so easy to figure out. How can you know which customers are not a good fit? My suggestion is this: take a look at your existing customer base and see if the new prospect looks similar in terms of how they are serviced. Are the hours similar? The expectations? The services? To give an example, my company is focused on larger commercial office and manufacturing facilities. However, we took a stab at servicing big box retailers. The hours were totally different and required management at hours when we didn’t have managers working. Very quickly, we realized it was a terrible fit for our company and we got rid of the account.
It Is Never Cut And Dry
Knowing when to say NO is rarely an easy decision. We often struggle when we are on the fence about the decision. The account is slightly too large or slightly too far away. Or maybe the niche is totally different but you think it could open up a door for you to grow the business. The key is this: saying NO is a good thing, sometimes the best thing. Make some rules for you and your team and stick to them. These rules will help you know when to say YES and help you avoid situations that put your company at risk. Smart, controlled growth is better than fast, indiscriminate growth.