and how customers kill businesses
1. You can’t afford to lose a customer
Wrong. You must actively cull your customer list and manage the departure of some customers.
The most important time to do this is when you’re starting up or entering a new market (even though that’s the time customers are most precious to you).
Why? Because your customers are your business. They define what it does, how it operates, what its character is, its profitability – everything.
If you let your customers choose you, they are driving your business. If you choose your customers, you are in control of what your business will be.
If you get the wrong customers at the start, the growth you achieve will be in the wrong direction and you’ll spend the rest of your business life trying to correct it.
Consider this. At any one time, in any market, there is a swarming pool of customers looking for a new supplier. Some of them are looking because they are locked in litigation with their last supplier. Or because the credit they never intend to repay was finally cut off. Or because they sent their last supplier broke. Or because they are fundamentally unpleasant people and their last supplier improved her life by refusing to deal with them any more.
You start in business. You put up your hand and say, “Pick me!” And guess what? They do.
Now, not all of these people are nasty individuals. Some are warm, friendly people who will chat all day, take and appreciate your advice and give you piddling little low margin jobs that never go right and always come back for finicky adjustments.
Not only do you make nothing out of them, they take up a spot you could have filled with a better customer. The capacity of most businesses to service customers is limited, and losers consume part of that capacity.
Bad customers are often the slow death of a business. If you’re always flat out but you’re not solidly profitable, it’s because you’re letting your customers run your business for their benefit. It’s time to start actively sacking your poor customers and replacing them with better ones.
It’s not uncommon when a business tells me they need more sales (because they’re losing money) that it turns out they have no spare capacity to service new clients. They’re too busy with the losers they’ve got and that drives new clients away.
So I say that some existing customers can cost you six times as much as getting a new one, the complete reverse of a favourite lecture point of business evangelists.
Most insolvencies are not from lack of client numbers, but from lack of clients the business is able to manage for a profit.
The real rule is, if you want to continually improve your business, you must continually improve your customers.
2. The 80-20 rule
All aphorisms have opposites, for use when reality doesn’t comply. The 80:20 rule is the marketing opposite of Myth 1 above.
It’s the worn-thin observation that 80% of profits come from 20% of customers. Ergo, sack the 80% and focus on the money.
Doing this will quickly stifle your growth.
The reality is that while profits may come from the 20%, growth (and future profits) come from the 80%.
The book publishing industry is a clear example that I know well. When it was a cottage industry run by book lovers, the rule was that 20% of authors made a profit, 20% made losses and 60% muddled.
Enter the corporate bean counters. Amalgamations and the quick deletion of 80% of authors to focus on the profitable 20%. Profits! For a while…
Then some of those authors went off the boil. Or retired. How then to replace them?
Well, in the cottage days they were replaced by previously middling authors who grew into profitable maturity.
Having killed off this decades-long supply chain, the corporates had no choice but to poach big names from their competitors. Prices skyrocketed and now it’s quite possible for a publisher to make losses on multi-million sellers they overpaid for.
New authorship is stifled, slowly strangling the whole industry.
In every field there are big players, at their peak, potentially lucrative but also demanding and able to pick and choose suppliers. They are the 20%.
And there are smaller players on their way up, with much greater growth potential, more likely to appreciate your interest and efforts and more likely to carry you into innovative areas that expand your future.
They reside in the 80%.
With care you can do a reasonable job of picking them – but not via the 80-20 rule.
3. The customer is the most important person in the business
Wrong. You are. The owner is the single most important determinant of the present and future of any non-public company.
Why does your business exist? Because you created it. It’s your vision. And you are its centre. (Remember Skyhooks? Ego is not a dirty word.)
Of course, this doesn’t detract one iota from the importance of customer service. It’s about responsibility, control and making things happen.
4. The customer is always right
The customer is often wrong and sometimes you will benefit by telling them so – or at least by not complying with their view of the world.
Being “right” for the customer means getting a product or service at the best value-for-money possible. Being “right” for the business means selling as far above cost as possible. The two rights can be the same, but not always.
If you let your customers run your business, you’ll end up delivering a cheap copy-cat product, they’ll be very happy (for a while) but you’ll find it increasingly hard to get new customers – and then you’ll go broke.
There is another aspect of this. Innovation. New ideas come from ignoring a large part of what everyone is telling you, including customers. No hordes of customers demanded that Apple invent the iPad. And finally, changing the way you do some things is a way of getting new customers.
5. The customer pays the wages
Wrong! Wrong! Wrong!
The customer pays for a product or service which is the best value they can get at the time.
They pay for what they get, the product or service.
You pay the wages based on the margin you are able, by your effort, to squeeze out of satisfying the customer’s requirements.
They buy the product. You pay the wages.
6. Small means personalised service
Small business people often tell me one of their advantages (which they would like to promote) is that they deliver more personalised service.
If I probe this, perhaps asking for the evidence (because promoting a lie will reduce their sales), I often get dangerous emotional warning signals.
Individual small business owners like to believe they give great personal service.
Collectively, small businesses give generally mediocre and often shoddy, unprofessional service.
Most business owners are congenitally blind to the true standards of customer service they deliver.
And the more their advertising screams service, the more suspicious most people become. Think banks…
To confirm that you deliver superior service, answer yes to the following:
- My written warranty, given to every customer, is equal to the best in the business: the longest, the fewest conditions, the most benefits.
- I have written control systems in place, which everyone follows, to check the quality of every service and product and document the result.
- I have a documented complaints procedure which my customers know about, which my staff follow, which puts me in front of any customer whose complaint is not satisfied by the second attempt.
- I have regular independent confidential customer satisfaction surveys done, including a sample of people who contacted my business but did not buy.
If you don’t do these things, your assessment of your customer service standards is based on wishful thinking.
7. Customer loyalty (service, CRM and loyalty programs)
Now, I’m not saying customer loyalty is entirely a myth. In some contexts, I’m a loyal customer. But then again…
I’ll be about as loyal to you as you are a benefit to me. Give me good service and I’ll come back.
Unless someone offers me a special.
Or I’ve lost your phone number.
Or it’s more convenient, because I’m somewhere else.
Or just because I felt like some variety and they had this new product…
Or, I wanted an excuse to keep talking with the very attractive and somewhat flattering person serving me.
Or the salesman talked me into it.
Lurking behind the business evangelism on service quality is the truth that customers are fickle and promiscuous, though often discretely (enabling continuation of their main relationship).
The strength of the service bond will be much stronger if it’s backed by something tangible.
Like, you’re holding my artwork. I get a bonus Personalised Widget if I buy just three more widgets this month. You’ve initiated improved supply systems and I’ve come to depend them. You’ve gone beyond supply, to integrate with my internal systems and now you run part of my system. Hey, you’re not a supplier, you’re a member of my team!
Which brings me to customer relationship management. Most customers don’t want their relationship managed. They just want the best deal and the best service. They don’t want to be fitted into your model. They don’t want you to know more about them. They don’t want you to be essential to their lives. The more you succeed at CRM, the more you are going to feel to your customers like a bank.
This is not such a problem because in reality CRM is 99% myth. Anyone can talk for hours about data mining and individual purchase behaviour modelling, but my guess is fewer than 1% of Australian businesses have the technical capacity to do it (and it hasn’t done all of them a power of good either).
Finally, the loyalty program. Sometimes these work. They’re in here with myths only because of their name. Loyalty programs are all about disloyalty. If your customers are loyal to you, then you don’t need a loyalty program.
But then, perhaps that’s a mythical situation.