Every business has them. You may see them every day, or you might only have to run into them every now and again.
Yup, it's the penny-pincher, the time-waster, the complainer and Mr. something-for-nothing. They're your annoying, stressful and demanding customers, and worst of all - they're not making you any money.
This article is about putting the 80/20 rule of "customer spending" into action. It's time to identify who your unprofitable customers are, and find a way to carefully usher them out of your business. I'm going to show you how to spot your 'A-List' and 'D-List' customers, and then how to give them what they deserve.
Go ahead, say it: the customer isn't always right!
Anyone who has ever worked in a customer relation role will know the joy and sorrow that comes with serving customers. They can make or break your day - and your spirit. They can make your job enjoyable, or a nightmare.
In sales, customers sit on a pretty high pedestal. For most businesses, they treat every single customer with unquestionable service, regardless of how the customer treats them. Anything they want, they get it. After all, without them you'd be out of business, right?
But what about when customers push our buttons and stretch us to the limit? What if they waste our time and start to cost us money instead of making us money? Do we have to put up with it?
Absolutely not! A business full of unprofitable customers is an unprofitable business. The key to customer service lies in the ability to identify the gems and the rocks, and deal with each effectively. Your customers don't have to hold you hostage.
The majority of your revenue comes from your ideal customers. This is great news!
80% of your revenue comes from 20% of your clients, and those 20% are your ideal customers.
Generally, these customers (A-List) are loyal, spend a lot and spend often. They may be demanding, or ask you to stretch a little bit further, but they're fair and they're profitable. You make a substantial amount of money from them. You want to keep these customers in your business, and keep them exceptionally happy.
The rest of your customers can be organized on a sliding scale all the way down to your D-list, or unprofitable customers. These are the people who waste your time, energy and resources. They're never satisfied, and nearly always cost you more to serve than they actually spend in your business.
The most profitable - and enjoyable to work in - businesses know how to spot and cater to their 20%, as well as how to spot and fire the difficult customers.
This article is about optimizing your customer base so you can...
a. serve happy, pleasant customers
b. see more repeat business
c. have happier staff
d. make more money
To identify the bad apples, you'll have to first make a list of your ideal customers. Go through your database of customers and make a list of the customers that make you answer yes to the following questions:
Has the customer purchased from you on several occasions?
Is the customer profitable?
Is the customer strategically important to your business?
Has the customer spent a significant amount of money in your business?
While you do this, you may also wish to make a list of customers who made you answer no to one or more of those questions. Those customers could potentially be unprofitable, or undesirable ones that you need to think about avoiding or eliminating.
When you are trying to establish how profitable a customer is, think about how much they spend, how often they spend, and what they buy. Do they buy high-margin or low-margin items? Have they referred other customers to you? Do they pay on time? Do they buy products or services at full price? Each business will have a different set of criteria to evaluate this, but use those questions as guidelines.
Your ideal customers are those that are highly profitable, and a dream to deal with. You're more than happy to accommodate their requests, and go above and beyond their expectations. These are the customers you will want to cultivate more of in your business.
Your ideal customers are the ones that:
Ask you for the products and services that fall within your expertise or specialty.
Value your products and services, as well as you and your staff.
Pay a fair market price.
Challenge you to be better at what you do.
Support your continued business and professional growth.
Help you move in new strategic directions.