In any contract or project business it can often take the same amount of effort to make a £5,000 sale as a £50,000 sale. The profit on the £5,000 contract may be marginal, the profit on the £50,000 sale much more.
While the lower value sale may bring in cash to pay wages today, it may also rob the business of taking on larger more profitable contracts tomorrow. It can be a difficult choice to make, especially if money is tight.
The whole picture needs to brought to the evaluation: is the customer a regular buyer? Do they want the world on a stick? Will they pay anything up front? Will they pay on time? What is the customer business credit score? Exactly how much of the contract is actual profit and not just cost coverage?
If you cannot bring yourself to say no then at least raise the price or ask for more advantageous payment terms (eg money in advance).
It is sometimes surprising how taking the tough line brings dividends, but sometimes this is because the customer has run out of other suppliers because of their past behaviour.
It may seem a strange point to make for start up businesses in particular, but being choosy early on is important.
In the early stages of any business, the need to make sales and generate income is so important it often blows a great deal of common sense out of the water. This attitude can lead to many costly mistakes.
One of the chief ones is taking on unreasonable customers. You see, new businesses can often be spotted a country mile away by people with experience. They will drive your price down, add in unreasonable terms of delivery, delay and/or query payments, keep on extending the size of the project at the same cost - you name it.
The bottom line is the bottom line. You need to take a cold hard look at your sales to make sure they are profitable. The only reason for taking on unprofitable business is that it will buy you much larger and more profitable business later on. However, even then it may not be worth it as the promise of jam tomorrow may sound good, but jam today is what makes the business work and unreasonable customers often do not deliver the promised jam of tomorrow.
You should also consider the opportunity cost. Unprofitable or marginally profitable contracts may occupy valuable man hours that could be more usefully be spent on highly profitable contracts.
There are times when it is just better to say no to the prospect and move on to deal with more reasonable people.
Bad customers are a drag on the business, they will slow you down and can cause problems when it comes to selling the business so it is better to be as choosy as you can as early as you can.
