BrainTrust Query: Should You Fire Your Customers?
Commentary by Mark Price, Managing Partner of M Squared Group
Through a special arrangement, presented here for discussion is a summary
of a current article from Cultivating Your Customers, the M Squared
In a recent post on The New York Times website, in the section called “You’re
the boss — the art of running a small business,” Jennifer Walzer,
the owner of a company that provides corporate data backups, wrote a post suggesting
that her smaller clients might have to be “fired” in order to provide
more focus on larger clients and prospects. “As much as I would like to
continue to take care of our small clients, we might have to start introducing
them to other options,” she wrote.
Jennifer runs a high-touch company that provides extensive support services
to all her clients, even the small ones, and she is concerned with her limited
staff, that she may be expending too much energy on clients that cannot help
her achieve her growth objectives. These concerns are not to be easily discarded.
But the issue that she raises is a broader one that is applicable to customer-driven
companies across industries: “What should I do with my lower-revenue
or margin customers?”
Traditionally, the playbook has read that you should “fire” or “de-market” your
lowest value customers. “Fire” usually means disconnecting, unsubscribing
or refusing to serve customers who do not meet specific financial criteria. “De-market” is
a bit more subtle. It means to cut off all voluntary communications with a
customer to discourage them from revisiting your business.
Remember, your greatest
opportunities lie not just in building and maintaining relationships with your
best customers, but also cultivating relationships with those who have potential
to deepen their relationship with you. As a result, here are three questions
you might want to ask before you break off relationships with a customer:
- How strong is my relationship? How many times does this customer
do business with me? Do I have a conversation going with them? Low-value,
highly frequent customers with good interaction patterns often make good
recommenders for your business, extending their value threefold or more.
- Is this customer in a strategic business for me? Sometimes low-value
customers can help provide the volume necessary for a company to build the
skills and scale in a business that will benefit the company over the long-term.
- What don’t I know about this customer? Sometimes, the information
we don’t know can be as vital as the information we do. One of the
key metrics that is hard to obtain is whether or not the customer is actually
spending a lot in the category, but just not with you. Often if you have
customers with low revenue or margin, and all the rest of the indicators
suggest they should be best customers, they may be, just not for you.
Discussion Questions: What criteria should guide the decision of a retailer
or a business to “fire” or “de-market” lower-revenue or