If you own or operate a business, you have probably had customers you wish you could just eliminate. They are usually the ones who eat up every spare minute of your time, complain about everything, then nickel-and-dime you about the money they owe you.
You have often thought that you are probably better off without these pesky people, that the best thing to do would be to just get rid of them. But you have been hesitant to do it, because you have not been able to easily quantify your gut feeling about these “problem” customers.
This uncertainty can be overcome through the magic of databases and customer relationship management (CRM) technologies. Now you can easily determine how much a particular customer is worth to your bottom line and what level of service you should provide to him or her to optimize your return on investment.
The Optimization Game
I used to run a software company that was hell-bent on providing great customer service. There was no request for services or needs that wasn’t met. We once put an engineer on a plane at 6:30 a.m. on Christmas Eve so he could get to Boston to fix a customer network that was not operating because of a hacker problem.
We covered support 24/7, and no request was ever ignored. The only problem was that we did not optimize our return for this great level of support. We provided great support to everyone, no matter how much they were paying or how much the support cost. This often meant that we were losing money on deals. Small customers (who were also the ones that complained the most) sucked up great amounts of resources and stifled the growth of the entire company.
Unfortunately I was not able to accurately track our profitability with regard to specific customers to offer them the appropriate amount of support. But optimization of support levels should be a tenet of any small business. For small businesses (actually, any business in our adjusted economy), quickly achieving profitability is the cornerstone to survival.
Optimization is a door that swings both ways. You will want to give special treatment to the customers who are your big spenders, because they are usually the ones who provide you the greatest margins. You don’t want to lose these profit centers, and you should spare no effort to keep them in your stable. On the other end of the spectrum are the customers who bring you less profit. These customers should probably not be given the extra perks. You may want to limit their access to your resources — or make them pay to get those resources.
This may sound a bit contrary to the premise that “the customer is always right” and to the “don’t lose a customer at any cost” business advice, but in the age of CRM, when so many aspects of a customer can be tracked and monitored, this shift in philosophy will help the bottom line.
Already in Practice
This idea of preferred and deferred treatment for different customers is already in practice in certain industries. Most airlines and credit card companies track and monitor the value of every customer. They know which customers are the most profitable to them and which ones they may actually lose money on. With this in mind, they change their level of service and try to maximize their profits.
This is why when you call into certain credit card companies and enter your credit card number, you may be answered very quickly or you may wait much longer. This simple method of processing wait time allows more valuable customers to move to the head of the line and less valuable customers to move to the back. A similar thing occurs in airlines’ elite programs. Elite customers are given special privileges, such as early check-in, preferred seating, and special clubrooms.
The principle of giving perks to some customers and running off others may sound a little draconian to some, especially to the less-preferred customers. But with the database capabilities of CRM technology, no company should ignore this opportunity. For the Internet entrepreneur, quantifying the lifetime value of a customer, ranking the customers you want to keep, and adding a range to your customer service offerings may make the difference between failing and growing.