Fire Your Customers

I’m always coming up with advice on how to keep your customers happy and coming back, so you may think I’m joking with a headline like that, but I’m dead-set serious. Some customers are more than just a waste of time – they can actually waste your money!

It’s all about lifetime value. The lifetime value of a client is a critically important factor in any business. Put simply, until you know what it is, you have no idea how much to invest in marketing (including the kinds of offers you could make) to obtain a new client.

Calculate your client’s lifetime value by doing this:

1. Estimate or work back through your paperwork to discover the average length of time a client stays with you.
2. Calculate the average net profit from your work with that client over the average length of time they stay with you, remember to take into consideration the amount it takes to attract that customer in the first place – advertising and marketing etc.

For example, let’s say a client stays with you for 4 years and the average profit per year per customer is $300: 4 years x $300 = $1200. Not all customers or prospective customers will help your business grow. Sometimes they seem profitable on the surface but end up providing a negative return on your investment. By understanding the revenue generated by various customer groups over the span of their relationship with you—and recognising how their business (and the business of individuals they refer to your company) affect your top line—you’ll be better able to target your sales and marketing efforts to focus on the customers most likely to help you grow.

Another way to look at it is to calculate your average sale or transaction value, multiply it by the number of times a client purchases from you, by the number of years they stay with you. Or you can make the same calculation using gross profit figures rather than average sale figure.

For example, take a service business dealing with commercial clients – where the gross profit on the average sale to a commercial client is $2,000. Customers deal with the business an average of 7 times per year, and they stay with that business for 5 years. The calculation then suggests: $2,000 x 7 times per year x 5 years = $70,000!

A lifetime value of $70,000 per customer certainly makes it worthwhile to advertise, promote, and wow potential customers. So set your own benchmark along these guidelines and define the customer you wish to maintain and those you wish to see the back of.

Clearing out the deadwood from your customer base can be not only productive, but also profitable. If your customers are actually costing you money – then why keep them on board? But how do you go about actually firing a customer? One way is to discontinue advertising and marketing your services and special promotions to these people, natural attrition will eventually take its course and they will go elsewhere; the good thing about this also is that you have already made this customer more valuable by not spending advertising revenue on them.

Another way is to lessen the actual service you give to your customer. In other words if, for example, you have always gone out of your way to find answers, products or services for that customer, who then never reciprocates by buying them, tell your customer that product or service is no longer available through your organisation. They’ll soon find someone else’s time to waste.

It you’re in a food service industry such as a restaurant, let customer’s know that tables are for paying customers only. If a customer is taking far too long over a cup of coffee while there are other customers waiting to be seated, politely take away their empty cup and ask them if that will be all. If they still don’t take the hint, tell them the table is now needed for customers who have been waiting some time.

It’s difficult to think of customers as simply not worth your time, and firing some—especially when you’re a new business owner—seems preposterous. However, there are going to be (if they don’t already exist) customers who provide greater value to you than others do. You must differentiate between those customers that are profitable and those that are not. It’s important to identify and get rid of customers that may be costing you more money or time than they are worth. Armed with this information, you can focus your marketing and sales efforts on attracting and nurturing your most desirable customers. Obviously, the longer a client stays with you and actively continues to work with you, the better your lifetime value figure – wouldn’t you agree?