In my last post I asked my readers to think about the following question:
If the roles were reversed and you were the supplier, how motivated would you be to build a collaborative relationship with a buyer who constantly beats you up on price?
The easy answer is no but that may be based on the frustration a supplier feels if they are constantly under pressure to cut the price.
Should this question be part of your risk assessment analysis if you are a supplier?
I believe it should be.
Years ago I developed a tool I refer to as the “Ideal Client Profile” and this is a good place to start when you evaluate the companies that buy from you. Although there are no right or wrong answers, you should see a pattern develop as you analyze them.
The points are grouped and you may like my groupings or you may want to change them to fit your situation. Each question will likely spark additional questions that are relevant to your situation. This list is just a starting point for you.
- How consistent is their order record?
- Do they buy multiple products or services from us?
- What are the typical margins on the products or services they buy?
- Are there added costs related to location or service requests?
- Are there profitable products or services that they are sourcing from a competitor?
- Do they consistently seek price concessions?
- Do they adhere to our payment terms over 90% of the time?
- Do they require time-consuming paperwork in support of our invoices?
- What is the monthly volume of billing questions?
- Have they experienced and unusual amount of turnover in personnel?
- How stable is their financial situation? Are there signs that they might be struggling?
- Is their industry “recession proof”?
- Has there been an increase or decrease in companies entering or exiting their industry?
- Has there been an increase in regulation that is impacting the cost to do business with them?
- How long have they been a client?
- Has there been turnover that might impact your relationship with them?
- Will they work with you to deal with performance or product issues?
Any analysis that you utilize should give you valuable insight into your relationship with your clients.
How often should this type of review be done?
I look at it as an ongoing process. Clearly there is some benefit from evaluating key clients every year. Being alert to changes in the way clients are working with you or treating you is smart business.
You may have read or heard advice that goes something like this: “eliminate the bottom 20% of your clients every year.”
It is interesting that when I have assisted companies in this type of analysis that it becomes apparent that some clients should be “fired”.
I should note that just because a client has become a burden doesn’t mean that the relationship is over.
It may simply be a wake-up call that a better way of collaborating needs to be explored.
In the end, if they client is too price conscious then the answer should be obvious.
A good friend of mine ended what had been a very profitable relationship for over ten years. Their client had continually sought price concessions and my fried could no longer make even a modest profit.
Action Step: Every company has clients that are a drag on the bottom line. Identifying them can be eye-opening. If you are uncertain where to start a procurement professional like myself can provide guidance and expertise to help your organization achieve the results you need. If you want to go explore this topic in greater detail, please contact me.
EC Sourcing Group is one of the companies I represent because their tools have been created by dedicated and experienced sourcing professionals. They know the day-to-day challenges your team faces and have built their tools to solve them. If you want to know how, I invite you to request a demo or 30-minute discovery conversation so you can experience the platform, process, people, and tools. You can reach me at (973) 718-7071 x875. The call will be forwarded to my mobile phone if I am not in my office which is pretty likely.
Next week I will continue on this same theme so your organization can improve your bottom line.
If you would like to know more ways to reduce costs without changing the way you do business, simply give me a call or send me an email with your contact information and the best time to reach you.
You Won’t Drift to Success©
Think about it.
Until Next Time, I Wish You Great Success in Your Business and in Your Life