Getting Customer To Pay For Something They Should Be

Discussion in 'Growing and Managing a Business' started by Leeder, Jan 4, 2013.

  1. Leeder

    Leeder
    uix_expand uix_collapse
    New Member

    Joined:
    Jan 4, 2013
    Messages:
    6
    Likes Received:
    2
    My company has a customer that has been housing material with us nearly free of charge (they are paying less than half of the annual cost they should be) since about 2004 when they started. The inventory of materials is a side business to our main act, which is using said materials to create samples for them to sell the materials. They started housing with us around the time we started giving this ability to our customers. Back then we decided this was going to be for the customers benefit and free for them (minus receipt of use of materials) because of the small amount they were storing. Over the past 8 years they have grown rather large and have started housing a LOT more with us. We have tried to get them to start paying the full payment of the material housing, but with each conversation, and each explanation of the fact that they would be spending MUCH more money to house this themselves or anywhere else than what we are asking for, they refuse and ignore the subject.

    The reality of the subject is that if they do this themselves, their freight cost alone would put them well over the amount we are wanting to charge them based on the frequency of how often they would have to ship the materials to be sampled instead of housing it with us. We have been toying around with the risky idea of telling them we will send it all back without full payment because we are taking such a hit for this (and we really are taking a hit). The only problem is, that the hit is smaller than the total amount of sampling we are doing with them (dollar order wise). So if we give them an ultimatum to pay or take the fabric back, we could take an even BIGGER loss by them saying "Fine, we will do our business elsewhere completely."

    Do you have any ideas on how this can be presented to them to get them to understand what we are doing for them and how much money they are actually saving, compared to how much we are losing, and get them to pay the full amount and at the same time keep the rest of their business.
     
  2. Ted

    Ted
    uix_expand uix_collapse
    Member

    Joined:
    Jan 3, 2013
    Messages:
    182
    Likes Received:
    164
    It seems to me that this whole subject is really based upon your relationship with this customer. If your relationship is good and the customer is a reasonable person, then I don't see why it would be an issue.

    I would write a well thought out letter explaining that you are instating a new customer policy limiting the amount of material that can be warehoused for customers. Explain that it is due to increasing storage costs.

    Then stick to that policy.

    If this customer expects you to actually lose money by having them as a customer, then why in the world would you want them as a customer? I learned long ago that it is not in your best interest to work with every person who wants you to do business with them. The customer has to be reasonable or else I would send them away. Let them be someone else's headache.
     
    • Like Like x 1
  3. Leeder

    Leeder
    uix_expand uix_collapse
    New Member

    Joined:
    Jan 4, 2013
    Messages:
    6
    Likes Received:
    2
    The reason is because we are a very well known company in our industry. One of the elite. This customer is one of our biggest customers when it comes to our main reason for being a business.

    My VP of Sales has been in contact with them no less than 5 times explaining the situation and they still refuse. We have a great relationship with them, but it is the kind of relationship that could easily take a trip south if poked and prodded too much. And we fear the only way to get what we need would be to take a risk that could potentially hurt us badly. Another side of the coin is asking ourselves if it's really a big enough problem that we need to keep bringing it up or take the risk.
     
  4. PS9

    PS9
    uix_expand uix_collapse
    Member

    Joined:
    Sep 23, 2012
    Messages:
    51
    Likes Received:
    46
    I'm not sure there's an exact answer to your problem, mainly because it seems you both need each other to conduct business. It seems to me that you'd have a bit more to lose though if something went south because you mentioned "one of our biggest customers when it comes to our main reason for being a business."

    Basically I think you got to figure out who loses more. If it's you then it may be in your best interest to deal with it. If it's them then I'd go ahead and push harder because you know the chance of them going "Fine, we will do our business elsewhere completely" isn't very good. It doesn't sound like you're losing money off the deal, perhaps not making as much as you should/want to, but you're not losing money. If you are, then I'd cease the relationship one way or the other. Sometimes the best option is telling a customer, client, whatever that you won't do business with them; generally speaking it's only a good idea if you're losing money though.

    One thing you didn't mention, do you have someone else lined up to take the space they use? If you don't I'd leave things they way they are because some money off the space is better than no money off the space. If you got someone lined up, something that would make you more money, then tell the current customer to pay up or bug off.
     
    • Like Like x 1
  5. Ted

    Ted
    uix_expand uix_collapse
    Member

    Joined:
    Jan 3, 2013
    Messages:
    182
    Likes Received:
    164
    If you have a good relationship with the decision maker over there (whoever their representative is) and their company is completely satisfied with your services, then there shouldn't be an issue explaining that you are losing money on the deal.

    If they are unresponsive to you then it is either because the relationship isn't as good as you think or else because they simply don't understand or don't believe your dilemma. So, if you are certain that your relationship is very strong and that they have no intention of shopping for a different vendor, then you simply need to get them to see where you are losing money.

    Maybe you offer to take someone to a business lunch. Then bring paperwork to prove your point. Explain that they are a terrific customer and you want to do everything in your power to preserve a pristine relationship.

    And like I said, if that other person is a reasonable person, then how can this not workout?

    If you are crystal clear about how it is hurting your bottom line and they refuse to budge then you can decide whether the ultimatum is necessary.

    Any reasonable business person would expect that both you and them to be in a mutually beneficial relationship. It isn't supposed to be one sided. If they think that it is supposed to be one sided then I would figure out how to wean them out as customers altogether.

    Show them the problem from your perspective and ask them how they propose you should solve the problem. If they say it is not their problem, then you need to find better customers.

    - - - - Posts Merged - - - -

    And maybe you shouldn't just take what the VP of Sales is telling you at face value. Maybe a second person needs to attend the next meeting together to make sure that it is being made clear how important the issue is to your company.
     
    • Like Like x 1
  6. sigma

    sigma
    uix_expand uix_collapse
    Active Member

    Joined:
    Aug 31, 2009
    Messages:
    1,944
    Likes Received:
    283
    None of the customer can simply agree to bare the extra cost, they are always looking for cost down, not paying extra.
    If you want them to pay extra, you need to write a cost comparison for them to refer, and you shall able to bare the risk of losing this customer if they are able to find the cheaper or better replacement.
     
  7. Have you actually broken down how much this is costing you vs how much profit you're are making off of this customer?

    For example: Let's say customer "A" is spending 100k per year with your company but it is costing you 20k per year in storage fees to conduct business. There is an 80k profit per year before other expenses are factored in. Now let's say customer "B" is spending 10k a year with your company but pays their full storage bill. There is a 10k profit per year before other expenses.

    Which customer would you prefer? The correct answer is "both" :) but in the context of the proposed problem you would want customer "A" because they are bringing in the largest profit even though they are costing you company money.

    Now the above is purely a hypothetical and maybe the margins are much closer or much further apart. Either way, this seems to be a questions of profit vs loss. Once you have that figured out, you have your answer. Heck, if I had a customer that is bringing in 100's of thousands a year in profits, I will build a 100k pole building to store their product :)

    You also have to see this from the customer's perspective. The customer is most likely looking at this from the point-of-view that they are one of your largest clients and they spend "x" amount of dollars per year with your company. They may feel this is a matter of greed and may be expecting some extra courtesies for being your "biggest" client. Also, customers generally expect to pay less for fees as they "grow" with you and conduct additional business. Your business model should of been to charge your smaller customers for storage and give storage courtesy to your larger clients. Not the other way around. As customers buy in bulk, they expect a discount. Since you started offering the storage for free, you gave yourself no where to go.

    Again, you need to weigh the profit vs loss and if the potential risk of losing this customer is worth the fee(s) you wish to charge for material storage.
     
    • Like Like x 1
  8. smo9marketing

    smo9marketing
    uix_expand uix_collapse
    Member

    Joined:
    Dec 26, 2012
    Messages:
    33
    Likes Received:
    8
    Big guys get big by taking advantage of opportunities.

    For your perspective, they are just "taking advantage"

    Eliminate the opportunity by balancing the cost benefit ratio.

    In other words, if you can't increase their housing cost, raise the cost some other way.

    You could just leave the storage room door unlocked one night and get drunk at a dangerous a pub nearby. Nature will take it's course.
     
  9. Fergal

    Fergal
    uix_expand uix_collapse
    Premium Member
    Premium Member

    Joined:
    Nov 18, 2007
    Messages:
    10,575
    Likes Received:
    1,165
    Sorry but I don't understand the point you are making there, can you please clarify it?
     

Share This Page