Breaking Up Is Hard To Do

What's It To Ya?

Even if you service only a handful of customers, you should have an idea of their lifetime values. Factor in your profit each month, the positive word-of-mouth and potential referral source they provide, and their prestige in attracting new accounts. For example, doing a small amount of work for a high-profile customer may be valuable in attracting new high-profile (and profitable!) accounts. Determine how much you must spend to keep each customer, including all overhead costs. Know how much time you need to dedicate to each customer-and don't forget your time investment in keeping up-to-date on each industry. If you have a high-tech client, for example, you'll need to invest a lot of time in keeping up-to-speed on the industry's lightning-quick changes.

Figure the costs to keep each customer, and balance those against the cost to acquire new customers. Pay special attention to your cost to retain and the cost to acquire new customers, as it is generally far more expensive to get a new customer than to keep a current one. Once you have a handle on how much each customer is worth, it will help guide you in the "know when to hold 'em/know when to fold 'em" process.

120 Days And Counting

The most common reason for ending a relationship is for late or nonpayment. But how do you know when to cut off services? Your contract should be explicit about your terms, including when accounts are payable, when they're considered past due and what late fees there are, if any. When a customer pays late, consider past history: If the client is usually great about payment and has one late month, you probably don't want to suspend service. Stay in contact and find out why you haven't been paid and when you can expect your check. If you're going to stop all services, clearly communicate the day when services will cease. Stand firm:-consider the headaches of sending bills repeatedly, the lack of cash flow and the damage to your relationship going forward. Also keep in mind the energy you expend becoming a collections agent rather than a guru for your particular service or product. If someone pays you extremely late twice, cut the client loose.

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This article was originally published in the July 2000 print edition of Entrepreneur with the headline: Breaking Up Is Hard To Do.

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