Telling a number of your customers that you no longer wish to have the pleasure of supplying and supporting them does not sound like a good idea on the face of it.
But in these testing times, with margins cut to the bone and resources under pressure, culling unprofitable clients can improve your profits and put you back in the driving seat.
The story of one small reseller is a good example of how well this approach can work. The company was struggling to cope and seemed to be overrun with support calls and disgruntled customers.
Then, about 18 months ago, the owner/manager decided to take a closer look at who was making the nuisance calls. As he had suspected, accounting software end-users were the problem.
Not only did they place the most calls "often driven by their lack of knowledge, because they won't pay for training", but their calls were also the hardest to resolve and needed the most expensive staff on the job for longest.
Their calls also tended to be the most urgent, and they could not be persuaded to pay a price that made economic sense for the dealer. They had high expectations and were never satisfied.
In addition, some vendors were squeezing their channel hard by levying increased charges for annual support or annual licence fees.
"They really believed they were doing the real support, even though they only talked to dealers," the exasperated reseller explained.
"We decided to specialise more, to drop accounting and focus on our other activities, and concentrate our efforts on a smaller number of clients that are larger in income terms."
The new strategy has been in operation for about 15 months so far and, for this reseller, it has really worked.
"Revenues are similar, but margins are better because we have more fruitful and more personal relationships with the smaller user base. We are more profitable," said the reseller.
"Expertise levels are better because we concentrate on driving forward on the technologies that we like to deliver.
"The phone rings less. We have our problems but, by and large, the clients appreciate what we do for them in a way that those small-business accounting customers never did.
"Nor do we have a supplier demanding that we jump through this hoop, pay for this upgrade, do this promotion. It works."
But is this a phenomenon that applies only to very small high-maintenance customers and accounting software?
Ian Brooks, managing director of Cardiff-based SME reseller IBBD, doesn't think so. "Generally, the smaller the business the less they are used to paying, especially if IT is new to them. But other than that I think it is a mindset," he explained.
Changes of personnel at a customer can also make a difference. Brooks pointed out that a new arrival at what had once been one of his longest-standing and best customers resulted in the account becoming almost impossible to manage.
For this reason, it is important to pin down, in black and white, the terms and conditions under which you will offer support and service.
The attitude that a company has towards its supplier can also have a serious impact on the viability of managing the account. If you are too eager to win business it can backfire later.
London-based converged solutions specialist Citadel was set up 16 months ago, and in the early days it was more concerned about getting any customers than being selective about who they were.
"When we first set up we took on a legal firm from the City. They were one of our first two or three clients, and it seemed like good business. But they put in so many support calls that it started to cost us money," explained Simon Hollister, managing director of Citadel.
This client would make three or four calls a day, taking up a considerable amount of technical resources for a company with just nine staff.
"It varied from a plug being left out to the network going down; they were just technically inept," said Hollister. "They were not willing to pay more, so we parted company."
Citadel also had to increase prices for another customer that was not profitable to do business with.
Despite this, the customer has since bought equipment from Citadel. The legal firm mentioned earlier also makes occasional purchases, although it does not have a support contract.
These experiences have made Citadel modify its approach. "We should have seen it coming," said Hollister.
"We look harder at every piece of business we do now, and setting expectations is important. We can afford to pick and choose a bit more now."
Prevention is certainly more effective than cure with bad customers. Citadel operates on a minimum-margin basis now and tries to work with customers rather than just for them, claimed Hollister.
IBBD charges for its time, so prospects that could become difficult to manage tend not to become customers. Even so, Brooks admits to dismissing customers constructively.
"We try to price against bad customers, and we make it very difficult for them if they don't pay on time," he said. "If they are always on stop they can't trade with us effectively."
Brooks offers customers a 20 per cent discount on services if they pay on time, but the discount is withdrawn if debtors don't meet their deadlines.
Clients that want to string out payments and complain about service levels before releasing any money tend not to like this idea.
Being tough about your terms of engagement is all very well but it is not easy to win business, and competition has driven many resellers to reduce support margins in order to close deals. This has placed additional strain on both the bottom line and resources.
One reseller, who wishes to remain anonymous, said: "If you have built up a large volume of support contracts, and you manage the calls well, it is not too bad. But prices have not risen at all for eight to 10 years.
"In fact, they have probably gone down by 10 to 20 per cent. This is partly due to competition but more than this it is because the software suppliers have forced their way into the relationship between dealer and client.
"Your typical small customer won't pay more, and the dealer has no option but to sell it as a condition of his sale, so his support margin gets squeezed."
Cutting errant customers out of the equation can also work in the corporate market, according to Shaun Frohlich, chairman of reseller Teksys.
At one of his previous companies, a cull of difficult customers had a dramatic impact on the business.
"We regularly won large corporate accounts that systematically cycled through ourselves and other suppliers, buying on price, not attributing any added value to us but keeping our account managers busy as heck with quotes, demands, returns and the like," he explained. "They simply played rough and forever touted the carrot of volume and prestige."
Frohlich had a pretty good idea how much these customers were costing the company, as the returns from each account were regularly measured and compared.
The number of returns and quotes were all recorded, as were the actual sales. These figures would often reveal that a customer was actually costing the company money.
Even without the measurements, most companies have a pretty good idea of the problem clients. "Often there were no surprises about where our time was being wasted and resources depleted," said Frohlich.
"I found that getting rid of these high-volume, poor return-on-investment accounts worked like a dream.
"Either our sales people simply replaced them with better accounts or the accounts themselves would come crawling back once they realised the error of their ways."
Walking away from a customer can sometimes bring them around, but Frohlich claimed that some corporate customers are so bad that they have built up a reputation.
"One account that we 'sacked' was also sacked by another VAR with which I maintained a dialogue, and when we arrived at Teksys the exact same account had recently been sacked by them," he said.
However, Frohlich also sounds a note of caution. The wisdom of getting rid of customers depends to a great degree on the circumstances your business is in and the state of the market. The present conditions might not favour a cull.
"Customers are better educated than ever before and they know more about what they need and want," he said.
"Typically they hide behind price only when they are fearful of the value they are getting. Business today is tougher to find and easier to lose."
At present it is better to work hard to try to 'fix' problem customers rather than resigning from accounts, as finding new ones to replace them could prove difficult.
"As more business is going direct, the channel needs to be smarter about breaking up its proposition and making sure it promotes the relevant service to the right accounts," warned Frohlich.
Graham Bromham, managing director for marketing and sales at reseller Solsis, also believes that you have to make decisions about customers based on current business and economic conditions.
"We have previously looked at our customer base to ascertain the ones that contribute most in terms of revenue and profit," he said.
"But we concluded that, as long as each business had a positive profit contribution in each quarter, they were definitely worth doing business with.
"You can make decisions about culling customers only at the point when you have a low-value contribution customer tying up a valuable account manager or technical resource, and subsequently stopping that individual from working with, or developing more, beneficial customers and opportunities.
"To be honest, the current climate doesn't present most of us with that situation today."
Solsis has, however, tried to drive some customers to use an online purchasing site to cut the cost of routine business.
"This approach does mean that you risk losing direct contact with a customer, but in such circumstances we felt the benefits outweighed the risk," explained Bromham.
Distributors and e-commerce systems providers such as Actinic have been trying to persuade more resellers to adopt this approach, but with limited success so far.
Actinic offers web software priced at £379 (without customer accounts) and £799 (with customer accounts and integrating with the business's own accounting software) that enables a small business to set up its own active trading site.
Chris Barling, chief executive at Actinic, insisted that the effort and investment involved is minimal.
"It is very easy to set up e-commerce if all you want to do is make a few of your less profitable customers less expensive to deal with. Then it's great," he said.
"A lot of people were motivated in the past by the potential to increase sales, but the truth is that by migrating some accounts onto e-commerce you will reduce your costs."
But it would be misleading to say that building a trading site will solve all your problems. Persuading customers to order this way is not easy and they cannot be forced.
"With some customers it is very successful, with others it's not," said Bromham. "We do get resistance, and then we just grin and bear it. I would say we manage to convert one in four customers to some extent, but we never manage to totally convert them to online trade.
"The trouble is that the painful ones are usually the ones who know that we have very knowledgeable people, as opposed to box-shifters, and therefore they always look to us first for the obscure items. It's a difficult one."
Some people, he added, simply refuse to trade online. A number of them see it as putting the workload back on them, and are not willing to bear the overhead.
On the other hand, some 'service-only' customers have started to order products online from Solsis as a result of the website being set up. Previously these customers had never ordered any products from the company, according to Bromham.
Neil Sherratt, chief executive of Bristol-based email security systems developer iProof, warned that client-culling should be avoided if possible.
"I think cutting customers should be a last resort for a business. Once they are cut out, you will never get them back," he said.
However, Sherratt suggested that that diverting customers onto a different course can work. "Resellers should look at incorporating online applications as part of their product offerings," he said.
"To lower costs and risks they should market joint ventures with application suppliers, and earn commission revenue."
Individual resellers will need to make their own decisions about partnering with other companies to reduce the cost of managing customers, shifting low-profit business online, or simply walking away from customers that cost them money.
Culling part of a customer base that the business has fought hard to nurture and develop may be anathema to many resellers.
But in these cost-conscious times, it can have a positive effect, and it is an option that is surely worth keeping open.
Actinic (0845) 129 4800
Citadel (020) 7618 6418
IBBD (02920) 640 022
iProof (0845) 050 6323
Solsis (0118) 975 1166
Teksys (01256) 827 555
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