Tough Times Call For You To Fire Your Customers

by drjim on December 14, 2009

What Would Donald Trump Say To Your Bad Customers?

What Would Donald Trump Say To Your Bad Customers?

Well, not all of them of course, but at least the ones that you really don’t want to have. As product mangers we all like to brag both internally and externally about how many customers are using our products. However, the dirty little secret that we don’t share is that all customers are not created equal. In these tough economic times we should finally get around to firing the bad ones…

What Makes A Customer A Bad Customer

Here’s a novel idea: how about if you used your profitable customers to drive more profit to your company’s bottom line? Who could argue with that? Well, there’s a flip side to that coin: get rid of the customers who cost too much to serve.

Dr. Larry Selden of Columbia University has written the book on good customers and bad customers (Angel Customers and Demon Customers: Discover Which is Which and Turbo-Charge Your Stock). What his research has found is that the bottom 20% of customers can drain your product’s profits by 80% while the top 20% can generate 150% of your product’s profit.

Do I have you attention now? It sure looks like this would be a good time to spend some time categorizing your customers. You need to change the way that you do business as a product manager and stop being product-centric and become customer-centric (yeah, yeah — I know that you say that you already are, but you really aren’t). The reality is that you can’t serve every customer at the same level and you’re spending too much time on the bad customers.

How To Find Your Bad Customers

If we are all in agreement that you probably have some customers that should be shown to the door, our next challenge is to find out just exactly which of your customers fit this profile. They like to hide amongst your good customers so they can be tricky to find.

The best way to smoke them out is to categorize your customers. There are lots of different ways to try to do this: demographics, geography, product purchases. However, if you do it this way then you’re not going to find what you are looking for. Your bad customers will still be hiding from you.

Please note that finding your bad customers is not an easy task nor is it quick. You should plan on the process taking upwards of about 6 months to complete. This is how long a well-done customer-profitability analysis takes if you segment your customer results into groups based on customer needs.

In order to do this kind of analysis, you are going to need a lot of data. This data will come from your cost data, individual sales records, and your customer demographics.

Once you’ve completed doing this analysis the right way you can then rank your customers from the least to the most profitable. This is a good start; however, you still need to take it one step further. What you need to do is to then segment your list of customers into groups based on what their needs are. This includes things like buying patterns, behaviors, and other types of information.

How To Fire Your Bad Customers

Once you’ve identified your unprofitable customers, it’s time to deliver the bad news. However, wait a minute. What makes these customers bad customers is that they have bad habits when it comes to buying your products. You need to see if they are willing to change these habits and become good customers.

This means that you’re going to have to sit down with them and have a talk. I suggest that you be frank with them and explain that it just doesn’t make good business sense for you to keep doing business with them like you currently are.

There are lots of small changes that can be made that might change them into good customers. Changing the priority of things that you ship to them. Finding ways to reduce the number of calls that they make to your help desk. You need to include all of these in your discussion with them before you fire them for good.

What All Of This Means For You

The reason that product managers exist is to create and maintain profitable products. In a perfect world, you could focus all of your time and energy on deepening your relationship with your profitable customers. However, there’s one small problem with this: you have some bad customers.

The challenge is in discovering which of your customers are the bad ones. If you take the time to roll up your sleeves and do some digging in the numbers that you already have, you can uncover which of your customers are the bad ones.

Once you’ve identified them, it’s time to sit down and have a talk. If they are willing to change the way that they are doing business with you, then keep them. If not, then it’s time to let them go. Breaking up can be tough to do, but in this case your product’s bottom line will thank you for doing it.

Would your company allow you to fire your bad customers if you could identify them?

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What We’ll Be Talking About Next Time

So there you are: the product manager for a boring product. It turns out that there are other product manager who are responsible for products that are even less cool than yours and they are doing some pretty amazing things to make their products successful…

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{ 2 comments… read them below or add one }

Jason Garbis December 22, 2009 at 11:10 pm

Thanks for the insightful article — I have personally worked with a number of customers that, while I wouldn’t classify them as “bad”, have tried to pull us off-course from our strategic product direction.

This, I think, is another angle to this topic — that rather than just looking at customers from a pure cost and profit perspective, we have to balance their expressed needs and priorities versus those of other customers, and those that we, as product managers, believe need to be done. Knowing which customer requests to listen to, and which to ignore is a truly valuable skill. Prioritizing the wrong features carries an enormous opportunity cost, and can really harm your product’s ability to succeed in the market.

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Dr. Jim Anderson December 25, 2009 at 11:14 pm

Jason: you make a great point. What makes a complicated situation even more tricky is when your sales staff (or
CEO!) has a relationship with a “bad” customer. This makes the process of trying to prioritize new features tricky as you try to do what’s right for your product while at the same time trying not to offend too many important people…!

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