Classifying your customers can make a real difference to your business. It could be the difference that means you won’t spend every waking hour at work thinking about it! It could literally improve quality of life for you and your team.
You see, we all have customers we just don’t like to deal with. Well, why do it? Those customers who give us grief, never pay on time, complain consistently, or are generally unfriendly and uncooperative really don’t have to be a part of our lives.
So I’ve laid out a plan to give you insight into what classifying your customers means, why it’s important, and how to do it successfully.
Classify and Sack!
There’s only one way to describe this—an absolute MUST.
Chances are, you have a client list (literally a list or database of your customers and their details) that gives you a warm glow every time you look at the numbers because this base is the foundation of your business.
Perhaps you have a hard copy of the list, or you do a computer merge and it comes up to a number in the hundreds or thousands. But that warm glow could be false confidence.
That is, if you haven’t ruthlessly culled the ‘inactive’ customers from your list.
The first step, then, is to define your customers or clients into A, B, C, and D groupings.
First, let’s define an A client.
In essence, an A client might be someone who:
- Loves what you do.
- Pays for it on time (if not ahead of time).
- Wants a good quality product or service.
- Is friendly to you and your team members.
- Understands the value of creating something of value or taking care of their needs.
- Buys from you regularly, that is, they’re active.
- Understands the importance of their purchase and therefore appreciates your reputation.
- Gives you work you love doing.
- Has significant potential to grow.
- You enjoy working with.
- Refers other A clients to you.
- Let’s you add value in lots of ways.
B clients might be those who are deficient in one or more of these characteristics. Perhaps they don’t buy as regularly, but they have the potential to become an A. C clients are the same, only to a greater degree. They spend within a minimum range and have very little potential for further development. Finally, D clients are people you simply don’t want to work with anymore.
The key here is that you and your team create a SYSTEM to track your customers’ activities.
If you aren’t doing this already, you can begin this process by classifying your customers and tracking their activities from there.
Information such as special requirements, technical records, the total dollars spent to date, amount spent per contact, averages, and so on can then be recorded in one place.
This will help keep a very tight track of each client’s spending pattern. It’s on this record that you register them by their rating—A, B, or C.
When you have those classifications, you have to start doing different things with those groups—and those different things may start with ridding yourself of at least your D clients (if not the C clients, too).
There are lots of reasons WHY you have to do this. You see…
- D clients are usually the ones who complain the most and pay the least.
- They are often focused on price and discounts.
- They are almost inactive, only purchasing from you irregularly.
- They are usually the ones who can be dealt with far more effectively by people other than yourself.
- They do not value what you do. Therefore, it’s incredibly difficult to add value.
- They cause you stress.
- You do not enjoy dealing with them. (Please think about this: You do not HAVE to deal with them. Right now you’re making a choice to do it. It’s a choice you don’t like, so don’t deal with them.)
And what’s the biggest reason of all?
- They take valuable time that could be so much better used elsewhere. They are like an anchor holding you and your team down.
“ D Customers are sucking the AWESOMENESS out of you!”
Pareto’s Principle: 80/20 Rule
Now before you say, ‘No way, we just couldn’t afford to do that!!’ consider another issue, something called Pareto’s Principle.
This suggests that 20% of your customers provide you with 80% of your income. The other 80% of your customers provide you with only 20% of your income.
It is, however, the customers who represent this 20% of your income, who take up 80% of your team’s valuable time! And it’s the 80% that are your C’s, D’s, and possibly B’s.
As such, it simply isn’t worth working with them. Financially, the rewards to the business from these groups are limited, and valuable resources are constantly tied up for little or no return.
If you were to work through your customer list, you’ll probably find this to be the case. Think about those customers who spend the most with you and calculate the income from that group. Compare that, then, to the rest. When you do that, you’ll probably find it’s something close to the 80/20 Rule.
So, how do you move them out of your customer base?
Here, you have two options (or more if you can think of them!)
First, you could develop a system to pass work to others who are more willing to work with that kind of customer. Your competitors will normally be happy to accept your leads.
In fact, you could sell those leads to them. Often competitors are willing to pay you a fee for each one. That way, you can earn some added income to boot and they win a new customer.
(They’ll think like most business owners—any customer is a good customer. Understanding this is not the case will make you more profitable because you’ll have more time to deal with those customers who are more important to your business.)
To explain this to your customers, you could say something like this:
‘[Customer Name], we’ve been looking at the work we do with you and we feel that [other business name] could help you better with your needs. You see, we’re moving away from offering this [product/service]. I’ve really examined it closely, and I’m convinced that [other business name’s team] can help you get the [help/product/level of support/service] you really need.
In fact, I’ve talked with them already. They’re sure they can help and they’re looking forward to talking with you. Their rates are similar to ones you’re used to, and they’re happy to offer you an account and help out. Now that you’ve called, I’ll talk with them and ask them to call you later today. What time would suit you best?’
Second, you could simply fire your client. Here’s an alternative script as an example. (Of course, this sounds very harsh, but some would argue that it’s the only way to go.)
‘John, it’s important that we talk about how we’re working with each other, and how well my range of [product/services] match what you want. Clearly, if there’s no match, then I’m not serving you well.
My feeling is that the match doesn’t exist. In our practice, we want to work principally where we can make a real contribution to our clients’ [health/home/family/supply/appearance/business/life], instead of simply doing the basics.
It means we’re going to reduce the number of clients we deal with, yet increase the services we provide for them. That means, too, that our fees are increasing—in fact, the typical client we’re working with now is investing over [dollar200/dollar2,000/dollar20,000] with us each year. Clearly, they’re doing that because of the value we’re giving them in return.
Again, my feeling is that (unless I’m very mistaken) we simply can’t provide you with that value. How do you feel about that?’
Let’s say it again. When we say ‘get rid of the D’s, we really mean ‘get rid of the D’s from YOUR workload.’
Go ahead and classify your clients now. You’ll be amazed at the insights this gives you.
A management tool
Taking that one step further, you then use those classifications to manage your customers and your marketing to those customers.
You see, most businesses promote to every customer and potential customer as if they were the same. Needless to say, this is expensive because very often the marketing that would suit an A client would fall on completely deaf ears with a D client.
The classification process you’ve just been through would show you that your A clients deserve (and probably already receive) completely different attention levels than your D (soon to be gone) clients.
Your B clients, on the other hand, have the potential to become A clients. So it’s important here to nurture them, contact them regularly, and send them special information. Offer them privileges your A clients enjoy by explaining what that entails and lead them into becoming A clients.
Your A clients would need to receive regular contact, and a great deal of your energies would need to be focused on delivering fantastic service. In fact, we really should add something else to the title of this segment: “Define your A, B, C, and D clients…and then love your A’s to death!”
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