How does it feel when your phone rings? Are you excited by the possibility that it’s one of your favorite customers calling? Or do you find yourself praying it won’t be one of the awkward ones who seem to squeeze you dry?
When I’m working with the owners of small businesses I ask them to tell me about their customers, listing them in order of size. The Pareto rule almost always applies: 80% of turnover comes from 20% or fewer of the customers and then there’s a long, long tail of other customers, some of whom are real tiddlers.
Is it realistic to imagine that the profit you earn from them is in direct proportion to the revenue they provide you? Almost certainly not: most small business owners find that the number of phone calls they have to deal with, emails answered, invoices prepared, payments to chase, letters to write and problems to solve are just as many (and just as time consuming) for a small piece of work as for a big.
If you feel that your small customers are wringing you dry, then they probably are!
This won’t change unless you take action. Here are five proven tips aimed at helping you improve the quality of your customer base:
Tip 1: Know for sure which clients are profitable
Put a value on your time. Over a period (a month, say), track how much time you spend with each of your clients. Then convert this into a monetary value. If your business has 5,000 hours to sell this year and you’re planning on a turnover of £300,000 then each hour is worth about £60. On this basis, which of your clients are profitable?
Tip 2: Set a minimum order value
We all know that some customers are more trouble than others, whether the project is big or small – some people just never seem to be satisfied. Even so, you’ll probably find a close relationship between size of project and overall profitability from tip number 1. An easy way for you to avoid small pieces of work is simply to set a clear minimum order value
Tip 3: Give more to your best customers
Regardless of how overworked you feel, giving more time to your best customers will bring rewards. They’ll notice the special attention they’re getting and they’ll be delighted with the premium treatment they get. Spend time building relationships and help them find reasons for referring you – if they know like-minded people with similar values to their own (and yours) then this will be time well spent. Let your more junior team members handle your smaller accounts, supported and coached by you.
Tip 4: Put your prices up
You’ll find that the customers who value what you do will be happy to pay – particularly if they get more of your personal attention. If the small, troublesome customers don’t like it and walk away, allow yourself a small celebration.
Tip 5: Keep your nerve!
By now you’re probably thinking: ‘easy for him to say! But I can’t afford to lose any of my customers’. This isn’t really true. Serving unprofitable customers keeps you feeling busy and, often, feeling busy feels like being successful. But if you could free up all that wasted time to find and develop customers who will appreciate you more, then the temporary dip in revenue will be short lived.
Perhaps this story will give you heart. One of the very first businesses I worked with as a coach was a marketing services company based in East Anglia. The two owners took deep breaths and tried all of the ideas I outline above. They quickly realised that the customers they enjoyed working with most were, without exception, also the most profitable. The reason was simple: bigger, more thoughtful and more professional customers are the ones who better understood the value that was being delivered by my hard-working clients. It helped my clients hone their own value proposition with more confidence, drop their smaller customers and find themselves not only with a more profitable business but one where they always looked forward to hearing the phone ring.
