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NB: This is step 1 of a 5 step series - Step into 2008 with more fun.
Firing customers sounds like such a harsh thing to speak of, but really, the concept is very customer friendly when you think about it in the right context.
When I say fire I don’t mean the jerk that abuses your staff, complains about price and pays the bill late - that one you shouldn’t need any help with. When I talk about firing customers, I’m really talking the type of customer that’s a much harder call, but still very much in need of the trim.
The customers that need to go for most businesses are those that buy a little, every now and again, but no longer really fit what I would call the ideal customer profile. These are usually customers that you have outgrown, that buy a product group that you don’t really support any more, that probably weren’t a good fit in the first place, that are unprofitable.
The problem with continuing to keep these folks as customers is that you are probably not giving them a very good customer experience, in turn you may be breeding customers that have become a drag on your brand. Maybe they are happy, maybe they aren’t. Could they properly refer a new customer, I doubt it. Would they give you a testimonial, I doubt it.
Creating a meaningful small business brand takes incredible focus. Your market must understand over a long period of time what your stand for, what you do that is unique, who you can bring the most value to - a narrowly defined and served ideal customer is crucial to this kind of focus. Customers outside your sweet spot just muddy the water. Besides the fact that they may very well be served much better by someone else - ending the relationship is likely a win for both.
Here are your action steps for today.
1) Create a spreadsheet of all of your current customers.
Rank them first by two variables, profitability and referral tendencies - in other words, are they profitable in order of volume and do they currently refer. As you do this practice pay close attention to bottom 25% of your newly ranked list and start asking yourself if your brand can benefit by continuing to do business with this group or would your be better served by freeing up the capacity it takes to serve and maintain this group and pour it fully into those that fall in the top 25%. Note the common characteristics among this top group.
2) Devise a strategy to refer your 10% to a reliable strategic partner
3) Create a crystal clear description of your newly, narrowly defined ideal customer profile - use this form to help
Update: An alert reader pointed out this article from Wharton that appears to take the opposite view of my point, but I actually think it supports my step in the view of the true small business. Make sure you read the comments from real small business owners after the article.
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This entry was posted on Thursday, December 27th, 2007 at Dec 27, 07 | 2:30 pm and is filed under FiveStep, Referral Marketing, Target Market. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
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I guess the jury’s still out on this. Or, more likely, it just depends on how you want to run your business. I can say from personal experience that I always regret, either a little or a lot, taking on a client that is not strictly in line with my core competencies.
The Wharton article mentions poaching from competitors being one risk of firing low-value customers. Made me think of the Match.com TV spots that ask “Rejected by eHarmony?” and lets viewers know that they accept everyone - “Come as you are.”
Pruning is good for plants. But I’d rather work at converting the 10% of clients than firing them. No pain, no gain. The tough customers are the ones that make you grow and get better … unless they are unprofitable. Never keep a customer that is unprofitable unless they are a non-profit that you have chosen to help (something I recommend we all do).
Dale Wolf, http://www.perfectcem.com
Dale,
No pain, no gain is for weightlifters - most of the clients I’m talking about are probably not profitable so converting them would just make the problem worse and take up the time, resources, and focus that should go on building relationships with the right customers.
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Thinning the herd has always been a very natural phenomenon. I concur. One can take this a step further and apply it even to business contacts, blog subscriptions etc…It’s an important concept and one far too many of us ignore or simply don’t do.
T
A few years ago, when I was mainly writing journalism, I was doing about half my work for a single client. I liked them, I like my editor, I liked the work and it paid the bills. Then a new editor came in. I did not like him and I think the feeling was mutual. It’s rare that I don’t get on with people but this guy was the exception. Anyhow, after a couple of months, I resigned the whole gig and stopped working for that magazine. It was a big fearful thing to do because it was so much of my income. However, I figured that tightening my belt and working hard to get new work was better than lowering my self-respect and dealing with a client I no longer liked. Within a couple of weeks, I had signed up a couple of bits of business with corporate clients that became the foundation of my current marketing business. I guess what I’m trying to say here is that sometimes you need to fire more than your bottom 10% and sometimes you need to do it for bigger reasons than ‘thinning the herd’. It worked for me - in retrospect it was the best decision I ever made.
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