I love the 80/20 rule. The Pareto principle (80/20 rule) states that 80% of the effects come from 20% of the causes. How does this apply to your business? If you dig into your accounting (a great way to spend the week-end), you will eventually find out that 80% of your revenue comes from 20% of your customers. Knowing this, you can also deduce that 80% of your customers are only contributing 20% of your revenue. Wait a minute here. How much of extra infrastructure costs do you need to take care of 80% of your customers? Interesting question. Granted, you don’t want to get rid of 80% of your customers, but this analysis does merit some thought. Are there customers who really take enormous amounts of resources, yet contribute little to my bottom line? Does this extra time and energy take your attention away from your 20%?
As business owners, we sometimes try to please everyone, keep every one on board. This is all fine and dandy as long as we don’t neglect our 20%. The exercise that is needed is identifying our most profitable clients and nurturing that relationship. These are our VIP customers. Our support staff should be made aware of these and treat all request with a high priority. These customers are the foundation of your business and even losing one of these would be devastating.
I’ve run a support center and we all know that the squeaky wheel gets the grease. The problem is that often…the squeaky wheel is from that 80% of our customers. You know who they are…the difficult ones that expect the moon from you, but can’t be bothered to pay their bills on time.
I had an interesting evolution of my business when I moved to Mexico and ran my company from there. I kept my 20% and quite a few of the 80% were left behind. What was the end result? Well…apart from acquiring a taste for 100% Agave Tequila, I found out that keeping that 20% of my former customer base happy generated great cash flow with little infrastructure. With modern technology, I was available to them at all times whether at my home office or at the beach surfing. I might have to revise that last sentence and instead say, attempt to surf…nevertheless, contrary to what I would have thought, my profit margin increased when I simplified my business.
How do you fire customers? You first need to identify them. Reporting is the key and VAR Office Suite has tools to help your business identify which clients are profitable and which aren’t. Once you have identified those customers who take the bulk of your resources, you need to make a choice. Do you drop them or do you keep them? I found that this question was easily answered if I increased my company’s value to them. I will give you an example. I once had a customer that would basically act like a child by yelling and screaming till I sent someone over to fix his ‘major’ issues. At one point, I quickly went to the customer myself and attempted to fix the issue. I was yelled at in front of everyone. At that moment, I didn’t care how much the customer owed me, it was over. Your fired as Mr. Trump would say. I went home and refused to answer the phone. Fortunately, my brave and wonderful wife answered one of the myriads of calls and basically told him off. “How dare you treat my husband this way. He was only trying to help, he doesn’t want to speak to you.” I had something he really needed in my possession. Knowing he was at a hockey game, I dropped it off at his home, I would not hold back something that would be detrimental to his business…that’s just who I am. Long story short, he agreed to give me $10 per hour more going forward. Years later, when I had to buy my partner out, he stepped up to the plate and help me get financing. What did I learn? Firing a customer is not as clear-cut as looking at the numbers. The key for me was being ready to lose a customer and asking for what I was worth. I ended up getting what I wanted and the relationship changed. For others, they simply drifted off and my attention was focused on caring for the VIP 20% and growing the business.
How do you fire a customer? It could be as simple as increasing your rate for them alone. If they stay, then they value your work and you have hope. If they decline, maybe it’s for the best and you can focus your attention towards those that pay the bills.
Above all else…sometimes it just feels good to say to a customer: Your Fired!