You probably spend 80 percent of your resources serving 20 percent of your customers. Sometimes, breaking up with your most difficult clients is the best way to improve employee morale and your bottom line.
Customer relationships can be similar to dating. You have more fun when you’re compatible, but you may have different needs and goals that cause conflict. Timing affects the quality of your relationship. The customer may have no projects when you have capacity to do some work and many projects when you have no room in your schedule to complete them. Mutually beneficial relationships align the needs of both parties, so both contractor profit and customer satisfaction are prioritized.
Learning your lesson
The old myths still abound. If you want to be successful, you must grow, regardless of the potential erosion of profit or the quality of the customers you acquire. When volume becomes the goal, you enter into projects that are underfunded and fail to investigate the business practices of your new customers. Because there is no loyalty in construction, any jobs you pass on will be taken by competitors, and you cannot allow that. Educating customers is a charming bonus, but it is not your primary mission to invest resources in demonstrating value. You have been taught that losing a customer is unacceptable.
The reality is quite different. Higher volume often erodes profit and exacerbates overhead burdens. Growth actually drains cash from the business. Jobs are most often won, at least partially, on reputation and capability. The best customers don’t want to play “contractor lotto.” They would rather deal with people they know and can trust to complete their jobs on time and within budget. Time is more important to good customers than money. Competing with rivals who don’t understand cost is stupid. Some customers are more valuable than others, and some should be dropped.
Deciding to drop a customer is easy if you continually lose money on his or her projects, your employees don’t want to work on them, and you never get paid. Subtler signals may go unnoticed. Each cycle, your payments may come a bit later, or closeout seems interminable. Your staff grumbles about unkept promises. Injuries rise, and productivity drops. Train yourself to look for early signs that these customers don’t value or respect the relationship.
Surprisingly, the customer you are dropping may react like a spurned date, with some variation of “Why don’t you like me anymore?” The client who believes you want every project may take umbrage at being rejected, and it is important to allow him or her to save face, especially in this wired, everyone-is-connected-and-you-never-know-who-knows-whom world. Simple economic theory dictates that your pricing should be substantially higher for the customer who drains resources and energy from your company. If the margin is high enough, you often can tolerate the relationship, including the payment delays, poor job site management and grumbling of your employees. Most likely, the customer will choose another electrical contractor, and you will be relieved of the burden.
Sometimes, if you become demanding enough, the customer will acknowledge the value of the relationship. In certain cases, customers have been so reluctant to lose qualified subcontractors that they have negotiated more favorable contract terms and improved their own management practices. When a customer asks why you’re no longer interested in doing business, take the opportunity to present your grievances. If you’re not interested, you can opt for the traditional “It’s not you, it’s me” line.
If you are concerned about leaving your customer without an electrical contractor, you might choose to provide a referral to a competitor who is a “better match.” No further explanation is necessary, but it can be satisfying to pair a difficult client with an annoying competitor. If your competitor’s schedule is filled by your rejected clients, you gain access to better projects at better prices—supply and demand at its simplest.
Clients change. So keep the door open, but hold fast to your principles. Let past customers come to you with a solid proposal before committing yourself once again.
To avoid unrewarding relationships in the future, analyze potential customers proactively. Don’t limit your selection of projects based on your market niche or available capacity. Extend your analysis to the developers, design professionals, and contractors for whom you will be working. Is the project fully funded and payment likely to be timely? Will you be presented with an equitable contract and capable, decisive project management? Will the design be complete, and the schedule manageable? How much pain, frustration and expense are likely to arise on the project? How are risks allocated, and is your potential profit high enough to balance those you are expected to absorb?
The analysis can be complicated, but the potential value of a new client relationship can be reduced to one question: what’s in it for you?
NORBERG-JOHNSON is a former subcontractor and past president of two national construction associations. She may be reached at email@example.com.