5 Reasons To Fire Your Customer
Posted by Kim Walsh at February 20th, 2013
Have you ever thought about firing a customer?
Business leaders in the past have and continue to pay very close attention to their VIP customers and they should right? It is the old rule that 80% of your revenue comes from 20% of your customers. So why wouldn’t a company spend quality time focusing on what makes the 20% happy? If this is true for you, how are you managing your top 20% of customers? Do you know what data defines a happy customer for your company?
It is tempting to want to embrace every customer equally — and we naturally want to understand why the low-revenue customer are not acting like the higher-revenue ones. We want to believe that we can nurture and develop all customers to reach high potential levels over time. We do know that it is always tougher to change a customers behavior than to find new customers. How do you determine if this is worth it? What tactics and metrics can you quantify to support these key decisions?
Below are five reasons that will make you think, should I fire my customer?
1. To get the right customer, you need to figure out which customers are the most attractive, and then temporarily shrinking the business before you grow it again. With each iteration, you get smarter and more targeted towards the ideal customer profile.
2. By focusing on customers with the highest potential in terms of repeat purchases and larger average transactions, one is able to create a more successful business because marketing and customer service efforts (and costs) can be allocated where they matter most.
3. When we evaluate a business model we think very differently about a dollar of revenue with a high probability of recurrence (i.e. a customer who will buy again, making it high quality revenue) versus dollars of revenue that need to be constantly be replaced with new customers.
4. We believe the threshold for a high-quality-of-revenue business is a revenue recurrence rate of over 85%, meaning losing no more than 15% of a customer base each year. Such businesses have higher predictability in their business model and greater leverage in their sales, marketing, and customer service.
5. The mandate for growth creates a bias for quantity of revenue over quality of revenue and customer service. A higher quality of revenue means a better long-term business.
Score your customers and fire the ones that are challenging. Those who are buying relatively little, but needing very high touch and maintenance. Drill deep to understand the metrics and score behavior preferences of your “super loyalists.” Where do they come from? What is their attitudinal profile and what products do they like best and at what price? Gaining insight and quantifying metrics of your top custo
mer base is the foundation for a high-quality-of-revenue business.
A great blog article from Anthony Tjan in Harvard Business Review mentions, “The customer may always be right, but not every customer is right for you.” Have you fired a customer lately?