If you've never shown a customer the door, consider yourself a rarity and read on anyway, because chances are good that some day your turn will come. Sooner or later, most businesses reshape their clientele for one of two reasons: 1. On the active side, businesses part with low-profit customers to focus on those who deliver greater bottom-line results.
2. On the reactive side, businesses sever relationships with customers whose demands abuse company policies and damage business profitability and morale.
Either way, parting requires effort and finesse. Wishes aside, in the business world there's no equivalent to a social network's easy "unfriend" button. Here's what to do instead.
Know which customers are vital to your success
The 80/20 rule, known as the Pareto principle and named for the economist who developed what's formally called the law of maldistribution, recognizes that in any group, 80 per cent of the results come from 20 per cent of the participants. In business, that means 20 per cent of customers account for 80 per cent of sales, while another 20 per cent account for 80 per cent of problems.
Your job is to focus on the profitable 20 per cent while not getting consumed by the demands of the costly few. To accomplish this balancing act, listen to the discontented so you can right wrongs wherever possible. But for every minute you spend putting out fires, spend four minutes nurturing your most content and profitable customers. Otherwise, you'll tilt your business toward those who may never be entirely happy with your business.
Shift your clientele away from costly customers
Define your best customers – those who are most satisfied and most profitable – so you can nurture and attract more just like them. At the same time, define which customers cost your business time and profitability so you can take these steps: * Consider revisions. Determine whether you can revise pricing or policies to serve costly clients more profitably.
- Referrals, referrals. If you can't serve costly customers profitably, refer them elsewhere. Extending the same friendly service style you'd advance during a sale, summarize your understanding of the customer's wants and needs and introduce businesses you believe could better provide what the customer is seeking.
- Follow up. It's important to keep in touch to see that the referral worked out. Your aim here is twofold: to help the customer and to avoid any sense of abandonment that could lead to negative reviews of your business.
More from Entrepreneur:
Get reactive (if you have to): Parting ways
Take action if a customer acts abusively to you or your employees, takes advantage of your systems or business, or ignores your payment policies: * Document the customer's negative impact on your business systems, profitability or morale, and define what changes could resolve the problem.
- Present the unsustainable operational, staffing or bottom-line impact of the customer's demands on your business. Don't get defensive or try to prove that you’re right and the customer is wrong. This will only inspire bad word-of-mouth – in person and online. Instead, politely present facts accompanied, wherever possible, with solutions for how to improve the situation.
- Listen carefully (out of earshot of others) if the customer wants to tell his or her side of the story. Don't interrupt, argue or blame others. You may learn that the client isn't aware of the impact of his demands, or that he’s willing to accept revised procedures or fees to overcome the problem.
- If you can't reach an accord, make parting ways feel like a mutual decision by using a term like “not a good fit.” Then get the customer redirected to another business. “Firing” the customer might be tempting, but not when the word hits the online grapevine. Likewise, taking blame for the bad relationship may feel gracious, but it will fuel the customer’s sense of being wronged.
After the fact, don't say anything negative about the customer. Instead, define what about the customer was out of sync with your business so you can avoid entering a similar, costly relationship in the future.
Barbara Findlay Schenck is a small-business strategist, the author of "Small Business Marketing for Dummies" and the co-author of "Branding for Dummies," "Selling Your Business for Dummies" and "Business Plans Kit for Dummies."
Copyright © 2010 Entrepreneur Media Inc. All rights reserved