Some say firing a customer can be sound strategic practice.
Then what about a mass customer layoff?
That’s what Libertyville-based MBX Systems did in 2010 when growing pains prompted it to do a revenue analysis. The company that makes custom server hardware for software firms found that smaller customers made up most of the work but not most of the income or profit.
Jill Bellak, MBX president and chief operating officer, explains how the company reset its business by culling nearly two-thirds of its clients.
Q. What prompted this decision?
A. We were starting to attract some bigger customers, and were having a hard time making sure we had the resources to keep those bigger customers happy. We discovered that the cost of doing business with smaller customers was very, very high.
Q. How so?
A. We had probably 215 active customers, and 15 percent of them were generating about 85 percent of our revenue.
Q. What did you do?
A. We determined where to draw the line. We went through a process with customers to help them understand how our business had changed and how we were no longer going to be the best choice for them. We gave them some options.
We put policies into place that if they were willing to buy in particular quantities and pay for some of the services that we could no longer provide for free that we would continue to service them.
We also identified other vendors that we thought were a good match for them, and we gave them a period of time in which to make those adjustments. Some people chose those options. Others made the decision to move to other vendors. We gave them six months to make that move so they wouldn’t face any business interruptions.
Q. How many clients left?
A. We ended up losing just over 60 percent of our customers through that process. That represented only about 6 percent of our revenue.
Q. How did that change the business?
A. Today, our top 25 customers are 85 percent of our business out of 42 active customers.
Our focus is on bringing in customers that fit more into this core that’s ordering more frequently and in larger quantities, which allows us to provide a higher level of service.
Now our accounts have an account manager paired with account coordinators. Sometime in the future we’re going to be adding an additional resource called an account executive. Their entire role will be more about our customers’ business plans and how we can help fit into that and help them with their overall growth.
Q. How would you advise other companies in a similar situation?
A. As our business was changing, we could have seen that sooner. We continue to watch that and want to make sure we’re targeting the right changes as we grow and change.
We were humane about it. We wanted to make sure we did everything in our power to not hurt our customers.
We also spent time with our employees to make sure they understood how we were doing it and why it was in everyone’s best interest.
Lastly, make sure you’re reading the numbers right. Make sure you measure twice and cut once.
Q. You said you could have spotted the problem sooner. How so?
A. This wasn’t the case with us, but the sign that I would look for is revenue per employee. We acquired a large customer that we couldn’t hire staff for fast enough. To continue at that pace we would have seen our revenue per employee go down.