Why We Fired Half Our Customers Last Year
The number one goal of most small companies is to increase revenue. We have a hump to get over, we want to grow, and we want to build a great business. How do we do this? We try to get more clients and serve them well. However, what if I told you that the best thing you can do to grow your business is to fire some of your existing customers? What?!? Yes, and this is exactly what we did recently at one of our branch locations. In fact, we fired nearly half of our customers in an effort to strengthen our local operation. Let me share some of the details.
One of our branch operations, our smallest branch at the time, was comprised of 2 very large accounts and a handful of small and medium sized accounts. These accounts were spread out over a 30-mile radius. Our management team was comprised of two project managers (managing the 2 large accounts), one branch manager, and an area manager (who managed the small/medium sized accounts). Of the accounts the area manager handled, 3 of them were pretty self-sufficient. The other 7 accounts were comprised of about 20 buildings and required pretty intense management effort. The total revenue managed by the Area Manager was about $500k/yr. We had some trouble staffing the Area Manager job, making it the highest turnover management position in the company.
The Problem Identified
The definition of insanity is to do the same thing over and over again while expecting a different result. That is what we were doing. In fact, things got so stressful at one point that our Sr. Management team was coming in from out of town to help with all aspects of the local operation, and our local branch manager ended up in the hospital with stress induced anxiety and chest pains. Yea, things were bad.
After allowing this chaos to persist for several months, we sat down and began to analyze our operation, and specifically the accounts that were causing us the most trouble. Some of the headache was due to demanding small clients, some was attributed to difficult accounts to staff, and still other headaches were coming from accounts that had multiple buildings spread over a large geography. We then took the 6 most troublesome accounts (totaling 15+ buildings), totaled up the profit generated from those accounts, and quickly realized it was equal to what we were paying our Area Manager.
The Solution Implemented
Because our Area Manager was looking to make a career transition, we decided to FIRE all 6 of those clients and completely eliminate that area manager position. Doing so eliminated our most troublesome and least profitable accounts, eliminated a management position, and caused our profit to drop by ZERO DOLLARS!!! Our branch manager now manages the 4 remaining accounts, while the project managers continue to manager their single-site large customers. In essence, we streamlined our operations, eliminated headache and stress, and removed unprofitable business. We are now more profitable with less business, something I never thought I’d say.
To be fair, you do increase risk by reducing your customer base. However, we now have a renewed focus on getting the right kinds of clients going forward – clients that are easier to manager, staff, and profit from.
The Lesson Learned
Anytime you make a mistake, you should always look back and learn from those mistakes. Mistakes are only beneficial when you make changes to prevent them from happening again. The key lesson we learned was this: ONLY PERSUE THE RIGHT TYPES OF ACCOUNTS. NOT ALL REVENUE IS GOOD REVENUE.
I would encourage you to do the same. Figure out what types of customers ideally suit your business model then relentlessly pursue them. Additionally, know when to say “NO” to the wrong kinds of business. Chaos and managers in the hospital is a lesson you need not experience. Learn from me and don’t make the mistakes we have made. Trust me, your team will thank you for it.