Firing customers is a dark topic in the 3PL community. Most 3PL companies want to keep every customer they can. This is because it’s easier to service one customer than many. What happens when a customer doesn’t have enough volume to stay profitable? What happens when the roles are reversed, and the 3PL’s business is affected by the customer? So, when is the right time for 3PLs to fire the customers. Read on to find out.
Why Should Warehouses Fire Their Customers?
A warehouse can, and should, fire its customers all the time. Warehouses fire their customers regularly. They do so because they finally realize that their relationship has become unprofitable. Another reason could be that their relationship has become harmful to their business.
Warehouse customers have been a part of the warehousing industry since its inception. The industry has grown and evolved. So, warehouses are beginning to question the essence of these customers.
The answer is a resounding “no.” Warehouses should fire their customers. Here’s why:
- Warehouses are in the business of storing goods and making money off those goods. They are not in the business of fulfilling customer demands. This means they don’t need to worry about what their customers want or need. They can focus on what they want and need from their warehouse customers.
- Customers are often slow payers or don’t pay at all. This ties up valuable warehouse resources that could be used for other things. It could also be used to buy new equipment or even hire more employees! Warehouses should be focused on making money. They shouldn’t wait around for payments from their customers.
- Customers are often unreliable when making sure their goods are shipped on time. Therefore, warehouses have to spend resources to ensure customers’ goods arrive safely. Something that could easily be avoided if no customers were involved!
What metrics should 3PL warehouse operators consider before Firing Customers?
There are many reasons why a 3PL warehouse operator might want to let go of a client. But it’s essential to consider the most relevant metrics before doing so.
One of the most important factors to consider is the growth rate of your business. If you’re growing steadily, it’s probably not worth it to let go of a client not growing at that same rate. After all, if you’re growing and they aren’t, you’ll be better off focusing on new opportunities.
Another critical factor to consider is your profit margin per unit. Your profit margin per unit might be minimal. So, it may be worth keeping the customers around as long as they regularly order from you. However, if their orders are small or infrequent compared to yours, it may make sense to part ways.
Last but not least, consider whether there are other options for fulfilling needs. If another 3PL offers competitive rates, it’s advisable to terminate the partnership. The metrics you should be keeping an eye on include the following:
The number of orders. This is obvious. But if your customer is ordering more than returning, they’re happy with your service. If their orders are declining, there could be something awry in your relationship.
The number of returns. Suppose a client has too many returns compared to their overall volume of business. This may show that your warehouse operations aren’t up to par. It could also imply that you’re mishandling customer complaints or damaged goods. It’s essential because it affects lead times and productivity. Yet, returned products need space in storage until they can be replaced.
What Criteria Do You Use to Judge the Value of a Customer?
Customers are the lifeblood of a business. They’re the reason you can stay in business. The more customers you have, the more money you make, and the better your business does overall.
But how do you know which customers are worth keeping? How do you know which customers will provide value to your company?
You must set up a system for determining who is valuable and who isn’t. When someone comes along asking for a discount, you’ll decide whether they’re worth it. You don’t want to waste your time and effort. And this will be based on some criteria other than “they seem nice.”
When it comes down to it, two main things make a customer valuable: potential and actuality. Potential means how likely they are to become an ongoing customer or repeat customer. It could also mean a single buy from an individual with whom there’s been no previous relationship. Actuality means how much money that person has already spent with your company. Alternatively, it could be how much they’ve spent with other companies in your industry.
When Should 3PL Warehouses Consider Firing Customers?
When it comes to whether 3PLs should fire their customers, we believe there are a few considerations.
First, they should be fired if the customer doesn’t meet their service level agreements with the 3PL warehouse—an SLA agreement between two parties details what services will be delivered. The SLA can change based on geography or time of year. If you’ve contracted for a specific turnaround time and your vendor fails to achieve it, you must end that relationship.
Similarly, if a customer has been late paying bills, they need to go. This is because you can’t build cash flow into anything if there’s no money coming in. This is especially true if they don’t have any financial backing. Why would anyone want it if the business isn’t profitable enough?
Firing customers is not an easy decision, and it’s one that many 3PL companies make too swiftly. Is it the only answer to an ongoing business problem or one that will continue to plague them in the future? It would be better to do it professionally and respect any prior business dealings when you decide to let a customer go. It’s never fun to end a longstanding relationship, but sometimes it’s the best road forward. For more details contact sales support.