Customers - that's what every business chases every day. Because whether you run a corner store, an online shop, a large manufacturing company or a consultancy, customers help drive revenue for your business - and are a crucial factor in the growth, development and survival of many companies.
We often tend to chase customers at all costs - and companies spend huge resources on advertising, marketing and sales efforts every year.
But are all customers equally good - and is it sometimes better to say no to customers rather than chasing more revenue?
In this article, we focus on the good customer - and give you insights into why you might need to reject more customers to ensure an even better business.
The good customer
Basically, the definition of a good customer is up to the individual company to determine. It may depend on specific goals, revenue and KPIs, while other companies may value softer values like communication, professionalism and collaboration.
Most business owners would probably characterize a good customer as a customer that generates good revenue, where you have had a long relationship and where the administration around the customer is seamless - including ordering and payment of orders.
How does your company define the good customer?
Say no to a customer - it pays off
Once your business has defined what a good customer looks like, you should consider whether customers who don't fit your definition - in whole or in part - should be allowed to become customers in your business at all.
Because as salespeople, business owners and sales managers, we often tend to let a lot of customers into the business because it creates sales - and sales are always good... right?
If your business has already defined what a good customer is, is it necessarily a good idea to let in customers who don't live up to it?
In the short term, customers who don't 100% fit the definition of a good customer may not hurt your business. But not all customers are equally good - and you won't necessarily make the same amount of revenue from all of them. We have to accept that, and that's often okay.
But few business owners and sales managers realize that bad customers - those that don't fall within essential parameters at all - can often be an expensive business. In some cases, the cost of keeping the customer can even exceed the revenue they generate.
That's why you'll also find a wide range of industries - such as consulting, IT, construction, civil engineering and catering - where large target groups, such as private individuals, are not allowed or cannot shop at all.
This is often because companies have found that working and dealing with private individuals is more time-consuming than corporate customers - this can apply to everything from marketing and administration to communication and payment.
Use credit checks as part of your credit rating
It can often be difficult to clearly define what a good customer is - and what parameters you need to set if you want to be more selective about who you do business with.
If you've been in business for many years, you can often draw on your experience with certain customer types and segments. For example, if you've historically had high costs or problems with private customers, you may want to consider rejecting all or part of this segment.
A good place to start if you want more effective customer segmentation is to support your own assessments with a credit check.
A credit check provides access to credit information - for example, whether a customer is registered as a bad payer in a debtor register. At Collectia, we offer access to such information through our platform Qatchr.dk, which shows, for example, whether a customer or supplier appears in the debtor list.
Credit checks provide you with relevant historical data that CVR and similar sources do not necessarily cover. While CVR can give you access to annual reports and basic company data, a credit check gives you a quick overview of any payment remarks and can thus be an important supplement to your own credit rating.
Good data quality minimizes the risk of bad customers
Har du styr på dine kundedata og en høj datakvalitet, kan det være med til at minimere risikoen for at få dårlige kunder – herunder dårlige betalere.
If you're good at collecting data about your customers - such as ability to pay, payment history and revenue history - it can give you a clear picture of which customers and customer groups you should focus on and which you should avoid - completely or partially.
Many companies that trade exclusively B2B, for example, have made this choice based on an internal assessment that the administration of private individuals is not profitable. This can be due to anything from guarantee requirements and stricter consumer rights to an assessment that private individuals pose a greater risk of losses on debtors.
If you use a professional ERP system, you can often easily pull statistics on customers and customer groups - and use this to support your assessment of whether there are customers you should not focus on - now or in the future.
By being aware of who your good customers are - and who are not - you can boost both revenue and customer satisfaction.
