Fire 10% of your customers
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.