The majority of your revenue comes from your ideal customers.
The 80/20 rule of business states:
80 percent of your revenue comes from 20 percent of your clients, and those 20 percent are your ideal customers.
Generally, these customers are loyal, spend a lot and spend often. They may be demanding, or ask you to stretch a little bit further; however, they are fair and they are profitable. 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 C-list–or unprofitable customers. These are the people who waste your time, energy and resources. They are rarely satisfied and nearly always cost you more to serve than they actually spend in your business.
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 several 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 who:
- 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.
Once you know who your top clients are, ask them what they want and value in your business so you can continue to provide great service.
Why do your ideal customers buy from you? And what more can you do to encourage their business?
Consider sending a survey out to your A-list customers and provide an incentive for them to complete and return it. Craft the questions to elicit a true picture of your strengths and weaknesses and include a combination of multiple choice, ranking and open-ended questions.
Ask your ideal customers questions about:
- The products or services they love or would love to see.
- Customer service elements that are important to them.
- Why they chose your business
- How your business could improve
- How could you do more business with them
You may also wish to create a survey for your staff to identify anything in your business that they feel could be improved. They are a great resource pool for ideas and enhancements.
Take the information you collect from these surveys and use it to genuinely improve your business. Fix any problems and eliminate any activities or services that weren’t identified as valuable. Maximize the activities and services that were identified as valuable.
Now on to the trickier side of customer service. Here are four characters you don’t want to see in your business.
Interacting with these customers will waste your time and your energy, and will not be worth it to your bottom line. These are the people who you will never please and who will never be profitable, no matter what way you look at it. These types of people will help you to lose opportunities rather than gain them.
- You’ll miss out on selling to ideal customers
- You’ll not be able to effectively serve your existing customers
- You’ll lose out on opportunities to bring in new customers
- You’ll test your patience, and lose your enjoyment of your work.
Watch for and learn to identify these characters, and don’t go out of your way to serve them. If it comes to the point where you need to let them go, do so without over thinking it.
The penny pincher.
This is your low-profit client. These are the people who only buy discounted or low-margin items, and are constantly looking for specials. They want 30 percent off opened merchandise, or 50 percent off something with a small stain. You need to be making money from your clients, or there’s no point to having them in your business.
These people drain your energy and suck up your time with long-winded stories intended to generate pity. They complain about the quality or performance of products, with an ever present suggestion that what you offer isn’t quite good enough. People who constantly complain, demand and rage will drain your staff and compromise the service you provide your A-list customers. You’re never going to please these people, so it’s time to move on.
Time wasters. If you’re spending time with clients who waste your time because they’re never ready or aren’t willing to listen to your advice, run now. These will be the ones who will constantly assume more of your time without providing anything in return and then will wonder why they’re paying you. You can’t help those who don’t help themselves.
The “more for nothing” client.
These clients always want something extra, at no cost. They want more and feel they are entitled to it. They’ll never value what you offer and you will consistently have to justify your prices to them. They’ll try to sneak more in at the last minute, when they’ve worn you down. Even when you do bend to their demands, they’re never grateful for it and will continue to expect it. They consistently threaten to walk away from the sale. Remember that if they don’t value your business now, they never will, so suggest they do business elsewhere.
If all else fails and you need to fire a difficult or unprofitable client, here’s how you do it.
There are many ways an interaction with a customer can lead to the point where you need to ask them to leave your business. Sometimes this will be a calm, pre-meditated event, while other times it will result from a conflict.
- Be polite and professional. Keep your cool, even if there is craziness around you. Be precise in what you say and always courteous and professional. Be clear about what you will and will not do, and what you can compromise on or offer. Never take the interaction personally and always remember to maintain your reputation as a representative of the business.
- Stay calm and relaxed. If your body language is tense or uncomfortable, it will appear to the customer and strain the interaction. Be confident in your words and know that it is your business and you have the right to ask customers to leave it.
- Offer an alternative. Tell you customer that you can’t provide the level of service that they expect, but perhaps your competition can. Maybe they can satisfy their needs. Don’t hesitate to provide a full refund on what they have purchased and send them across town.
- Send them a letter. If there have been repeated incidents in your business, pick up the phone or send them a letter politely suggesting that they go elsewhere for the product or service you offer.
- If you need to break a contract always review the terms of the deal and consider hiring legal counsel. This applies mainly for professionals and consultants, but if you are unsure of how to handle a challenging customer situation, be sure to have a chat with your attorney to cover your bases.
- Remove them from your customer database. Stop including your difficult customers in your newsletters and other marketing activities. Sometimes leaving them out of the loop is enough to keep them out of your business. When you do ask a customer to leave, ask for their membership cards and discontinue any unused credit.
- If they ask why, tell them. Don’t be afraid to give your reasons, but be polite. Tell them that you don’t feel that your company’s values align with theirs, or that you don’t tolerate harassing behavior.
- Offer them a concession – somewhere else. Give them an incentive to head over to the competition. Give them a refund on their purchase or a gift credit for another company. You may wish to keep gift certificates on hand for this purpose.
- If things get out of control, don’t be afraid to call the police; you need consider your safety first.
Empower yourself and your staff, and say goodbye to unprofitable clients, and focus your energy where it counts.
Remember that firing a customer doesn’t have to be a nasty encounter. As I described above, there are many polite, professional ways to end business relationships, and doing so doesn’t make you a bad person! You’re looking out for the best interests of your business, and the people who rely on its profitability.
Besides, for every moment you spend letting an unprofitable customer go, you’ll gain three more with your pleasant, profitable customers. And your ideal customers are the ones that count.