Small businesses think they need every customer they can get. Not true.
You're better off applying the "PIN," or pain-in-the-neck, test to identify customers who actually damage your bottom line.
The problem: Growing businesses chase every client, thinking they can't possibly turn anyone away. But the PIN factor outweighs the potential profits—a fact many small firms realize too late, after it costs them.
Example: After scrutinizing its client base, a four-year-old Virginia sign company realized it was spending too much time catering to too many customers who fit its PIN profile. Those PIN clients demanded to see 10 proofs of each sign, changed orders at the last minute and paid up slowly. By doing a client analysis, the company realized that its best, most profitable clients were construction companies and advertising agencies. Result: The sign company focused more on the best and less on the rest.
Here are three questions to help you identify PIN customers:
1. Is their business worth your time? Bottom line: If the amount of business won't merit the costs of servicing the client, you'll lose out.
2. What do their references say? It's a simple but often rushed practice: Ask new clients for at least three credit references and one bank reference, then follow up on each. If the client is large enough to have a Dun and Bradstreet rating, go to www.dnb.com for its report. Contact your peers in the industry for information about the potential client's reputation.
3. Would a rate adjustment make customers more profitable? Consider altering your rates for PIN customers. Instead of turning them down outright, move them up to the point where they become profitable for you. Require up-front deposits for large or complex jobs.