Knowing When to Let Go: Identifying Customers That Aren’t Worth Saving. by Jen Hickey.
Breaking up is hard to do. But, as in life, some business relationships aren’t meant to last. For a small business, especially a new one, each customer has a measurable impact on the bottom line. You try to make every customer happy by offering top quality products or services, but there’s always a few that never seem pleased. The more time and effort devoted to those “high-maintenance” customers, the less there is for the rest. You must decide early on whether such customers are worth the trouble. If not, then it may be time to part ways.
Before calling it quits, look at the ROI of a “problem” customer. Are they really worth keeping when considering intangibles like time and employee morale? Andrew Blickstein, chief visionary officer[JH1] of HomeRun Media, a media buying, research, strategy and planning company, calls this the ‘[garbage] metric.’ “It used to be if a client was paying us a lot of money, we’d deal with whatever [garbage] they threw at us,” says Blickstein. “Now, I measure by how much [garbage] I’m picking up.”
Blickstein recalls the first client he ‘fired.’ “Every conversation with this client was a struggle,” he says. The final straw came when the client ignored a memo from Blickstien that gave a detailed analysis of his campaign and the significant internal resources it took to provide. “I realized that this client did not respect the work we did and was never going to,” says Blickstein. “I thought, do I really want to do business with someone that doesn’t respect what we do?”
Blickstein called a few days later to sever the relationship. “The client was shocked because he was still paying me,” Blickstein recalls. “I wished him well and promised to continue servicing him until he could find replacement.”
Whether a customer is a drain on resources should also be calculated into the ROI. “The bottom line is the bottom line,” Blickstein notes, adding that his staff understands his preference to work with customers who don’t erode profitability due to high-maintenance demands.
For customers that may be worth saving, however, try to lay out parameters to help change their bad behavior. “In writing, present three ways to fix the problem. It’s important to offer them choices, but also limit those choices,” notes Beverly D. Flaxington, co-founder of Advisors Trust Advisors, and author of “Understanding Other People” and “Make Your Shift.”
PQ_CustWorthSaving.jpgIf that doesn’t work, it’s time to have the talk. “If you’re bending over backwards for a customer and there’s no strategic reason for keeping them, you need to offer them an alternative,” says Flaxington. “The client isn’t always right, but the worst thing you can do is to get defensive or try to show them the error of their ways.” It’s important to remove emotion from the conversation. Frame it as a business decision: Your company is moving in a different direction and can no longer meet their needs. Better yet, offer to refer them to a competitor and service them until they can find a replacement. “Give them the option to go,” says Flaxington. Often times, the customer will agree and maybe even be relieved.
Sometimes customer expectations are beyond the scope of your business. “We learned quickly the importance of knowing your target audience and what you can offer,” says Flaxington. “You start to get pulled away from other clients when all your energy and time is focused on pleasing the difficult ones.”
For a startup, saying no to any customer, even a difficult one, may seem risky. “Every client’s a percentage of our business at this stage,” notes Brett Brohl, who co-founded scrubadoo.com, a virtual one-stop shop for medical uniforms, in 2009. “If you lose one client, it hurts.” But Brohl has ceased business with two clients since going live just over two years ago. One was a large medical practice, with multiple locations and doctors that ordered lots of products. But the client continually sent requests to match or beat prices of lower cost vendors.
Brohl realized he was getting away from what differentiated his business from other medical uniform suppliers. “We are first a customer service company,” Brohl explains. “It was tough to turn away from a big client, but competing on price is not what we’re about.” When he stopped matching price, the client stopped placing orders. And it turned out to be the right decision. “Not only were we making a very slim gross margin, but this client consumed more time than any of the others,” notes Brohl. “It’s been positive in that it’s freed up time to do more selling and bring on new clients.”
If a high-maintenance customer is part of an overall strategy to expand into a new business segment, or a referral from a high value client, consider pricing the additional time and services into their bill. “If you’re a small shop with 100 clients and 10 of them are fairly low return and require a lot of time, we recommend that our clients use a price tier for services,” says Flaxington.
“The least satisfied customers, those in the bottom 20 percent, generate 16 times more complaints than customers in the other 80 percent,” notes Betsy Kruger, owner of Strategic Power and author of “Top Market Strategy: Applying the 80/20 Rule.” “Successful businesses are ones that specialize and focus on their loyal heavy users, those in the top 20 percent, and do not try to be all things to all people.”
Kruger recommends automating services for the bottom 20 percent of customers or moving them off the books by discontinuing that market segment or introducing them to a competitor. “Figure out how can you best serve those that delight in your business and bring in more customers just like them,” says Kruger. “Referrals from your top customers are really going to multiply your business. Focus on what you do best and who really appreciates that.”
In return, offer extras designed to keep those top customers loyal. “Reward high volume customers with loyalty programs, reduced fees, and customized products,” advises Kruger. “Give them personalized attention.”
In the end, if a customer’s calls inspire dread, it’s probably time to call it quits. “Deep down inside the client usually knows that, too,” says Blickstein.
