All over the world I teach people how to serve, surprise and delight their customers – how to keep them coming back for more.
But once in a while a client asks, “Should we keep every customer, no matter what they do, or what they cost?”
My answer: Absolutely not! It is okay to measure customer value versus profitability.
Some paying customers cost more to keep than they contribute to your bottom line. When you measure customer value, you might find they cost too much to acquire in the first place. Or they prove too expensive to care for over time. They might purchase the minimum while extracting the maximum from your systems and your staff, coming up short when you measure customer value.
There may be nothing malicious about these people. They are simply unprofitable and it’s okay for you to measure customer value in this case. You may, however, not want to cut them loose so fast.
Your first approach should be to upgrade these patrons to become more valuable customers.
For example, you might impose an administrative fee on below-minimum balances. But if your customers increase their volume, you agree to waive the fee. Essentially, you will have increased their contribution when you measure customer value after implementing this type of system.
You could offer no-charge delivery for orders over a certain amount, but impose a shipping and handling charge for small (and otherwise unprofitable) orders.
You might provide bare-bones service to customers who rarely visit or only purchase a small amount. But if these customers come more frequently or spend more money, you can agree to enhance the service they receive.
This is a constructive win-win approach to an otherwise win-lose situation.
But be careful! Implementing this strategy requires carefully and well-planned scripted communication with your customers before you make the change. Present the upgrade path as an opportunity to get more benefits and greater value, not as a penalty for their low-volume business.
But what should you do with customers who choose not to increase their business with you? Easy. Either charge them enough that they become profitable to keep, or guide them to alternative service providers who can meet their needs and budget. When you measure customer value, the numbers do have to add up for your business, too.
Note: There are special cases where this “upgrade” approach should not be applied.
1. Unprofitable customers may be related to very profitable customers, and hence quite sensible to keep. For example, small children might buy very little, but their grandparents might buy them quite a lot! In this case, when you measure customer value do so with care.
2. Government agencies may be required by law to serve everyone equally. Public charities may not even track the cost of service from one individual to the next.
3. Your company might serve low-income customers regardless of their profitability as a social contribution and valuable community service.
Key Learning Point
Unprofitable customers are just waiting to help you make a profit. What are they waiting for? An attractive offer to upgrade – from you! Measure customer value and see what you can do to increase it.
Measure customer value to figure out which customers cost more to serve than they generate in profits. Decide how much more you want them to spend, and how much more you are able to give for it. Extend an invitation and seek their increased business. Let them know what they will receive and what they must give for this win-win exchange of service.