Are you paying reps for unprofitable accounts?

by on December 2, 2013 · 0 Comment POSTED IN: Top Sales Dog
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We all have customers we don’t like working with. And sometimes you just have to grin and bear it, especially if the account is a profitable one the company simply cannot afford to lose, no matter what sort of ogre you need to contend with.

But the situation is different when it comes to customers that aren’t profitable. We’re not talking about commissions or bonuses here, but the bottom-line profit your company is making. Often this comes about not because of pricing, but the intensity of the handholding required or their demands or endless requests.

Sometimes this comes about because of our own willingness to go the extra mile in terms of service. The problem is that the more you serve them, the more they come away thinking of something else they want. That can drain away profitability quickly, when it comes to the demands on your time and that of others in your company.

Creeping unprofitability
Often the slide into unprofitability happens so gradually that you don’t realize how much the customer is draining away. Before long, a once-profitable customer can turn into one that is costing more than the relationship is worth. To make matters worse, things usually get out of whack long before anyone realizes it, or how bad the situation really is.

The sales professionals serving such accounts have their boots are on the ground, and are best positioned to see when a customer has become “high maintenance.” It is critical at that point for you to work with your reps to take control of the situation, otherwise it’s likely these customers will stay that way for the duration.

Part of the puzzle, of course, is compensation. Your comp plan shouldn’t reward reps for getting and keeping customers that are costing the company money. But they should be rewarded for turning unprofitable accounts into profitable ones. That means you may have to rethink the metrics of your comp plan.

A key metric to follow is service requests. Watch for upticks and track the trends. That’s easier to do if service requests come through Sales and are relayed to the appropriate internal resources or departments. If the customer deals direct with customer service, engineering or other people on your team, it’s tougher but just as important to keep track, because Sales is the only one who can see the “big picture.”

Another area to look at is the top of the sales funnel. Look for ways to keep unprofitable accounts out of the hands of reps in the first place. That doesn’t necessarily mean turning them away; it may mean diverting them into a lower-cost sales channel (such as online self-service ordering).

To keep such customers out of the funnel, you need a good way to score leads – so you can accurately estimate their potential before they get into the funnel. Don’t rely on hunches or your guesses as to who “looks” like a high-potential lead; rather, look at your existing customer base to identify early warning signs and markers that correlate with low-profit accounts. You may find, for example, that a customer’s sales volume is a good predictor of how much they’ll buy. Or buyers from certain industries may consistently deliver higher value.

Whatever you do, don’t assume that any lead is better than no lead. It’s better not to get a sale that costs you money.

Don’t roll over and play dead
If you allow the customer to continue to drain away profit with high-maintenance behavior, the financial and emotional toll can be high. Motivation will fall across the board, everyone involved will become disenchanted, service will suffer and the customer will likely end up going elsewhere anyway.

A better approach is to recognize that something should be done to correct the situation. Options include (1) confronting the customer to reduce their requests or (2) increasing their prices to offset the added costs you incur in serving them.

Option #2 is best, for a couple of reasons. A confrontation is likely to increase tension in the relationship and results in long-term friction that makes no one happy. Raising prices for difficult customers is a far better strategy. Either you gain the profit you need or the customer decides to walk away. With this approach, the customer is more likely to leave on better terms without the negative fallout from being “fired.”

Source: A posting by Mark Hunter. To learn more, visit www.thesaleshunter.com

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