We all know that the “customer is always right” but few business owners realise that there are customers that are just wrong. They are wrong because, believe it or not, they can actually harm your business while doing nothing more than patronising it.
A recent Australian survey revealed that on average one quarter of all customers are unprofitable to a business. This means that you could be better off without 25% of your customers.
They are costing you money to have as customers and you would be better to gently encourage them to go elsewhere!
This comes back to the 80:20 rule:
- 20% of customers (the good ones) will provide 80% of profits
- 80% of customers will provide 20% of profits.
Considering these statistics another way reinforces the notion that you need to identify your most profitable clients and service them well.
Let’s look at a profile of desirable customers. These are the ones who:
Buy large quantities
Order standard products
Buy products with high profit margins
Don’t haggle over price, so you get a good margin
Provide a predictable demand
Don’t change delivery arrangements
Demand low levels of technical and sales support
Pay on time!
This suggests that if you focus on and look after the requirements of the 20% good customers you have, and make sure that you aim your products and marketing strategy to suit them, your business should profit accordingly.
Look after them, provide them with what they require and immediately resolve any problems they have. Keep them satisfied!
Then, concentrate on looking after the middle 60% who are neither outstandingly profitable nor time-wasting profit-eaters. With the right attention, some will join your top 20%.
However, others, unfortunately, will never be of any real value to you and may turn into your 20% problem clients.
Managing your customers’ complaints
Research has shown that successfully resolving complaints provides one of the best measures for improving customer relationships.
This might seem strange, as most people view the complaining customer as a problem they’d rather not have.
In fact, a dissatisfied customer, who is converted into a happy customer, becomes a great advocate for your business.
Many Australians walk away when they experience bad service or sales, and you may never see them again.
However, the people who take the time to complain, will usually also tell everybody when
they’ve had their problem successfully sorted out.
Good complaint management, therefore, can improve your business’ reputation, create more customer goodwill and loyalty, and encourage repeat business.
If you are faced with a complaining customer you should:
Try and put yourself in their shoes – see if you can understand it from their point-of-view.
Listen attentively. Let them see you are listening. Say “I understand”, “tell me more”, and so on. This helps them tell you the whole story.
Remain friendly. They will expect you to be defensive, so hear them out pleasantly.
Clarify the problem. Repeat the whole problem back to the customer, so that you both know that you have understood the issue correctly.
Take notes. This helps you understand the problem and shows that you are taking it seriously.
State the action to be taken immediately. Let your customer know what you are going to do, and if needs be, when you will get back to them. Then do it!
If the problem is not due to any factor that relates to your own business, explain this clearly to the customer, and try to get them to acknowledge this.
If the complaint is due to some faulty product, offer a replacement product and try and throw in some sort of compensation.
Ensure your customers realise that you take their complaints very seriously, and will do your utmost to sort things out.
You want them to feel that providing a good service is of overriding importance to you.
However, you may still find that certain customers may be so unprofitable, so painful to deal with, and such a waste of time, that you don’t really want them.
These you should gently discourage or phase out as the opportunities arise.
When to discourage customers
It may go against your instincts to discourage customers, and you should only do so after trying to turn them into good ones. But if all else fails, you will be better off without them.
You must be very careful how you go about putting-off customers, however, as well as identifying which ones you wish to discourage.
More than anything else, you don’t want to later find yourself in court facing unfair discrimination charges, particularly if it could be construed that you were discriminating against them on grounds such as race, gender, physical or mental disability, political opinion, or even religion.
As we’ve mentioned before, any bad publicity, but particularly publicity of this sort, can do untold damage to your business’ reputation.
Try to edge them out while still remaining on good terms with them. A simple option would be to increase your prices. This effectively separates the “loyal” customers from the “time wasters”. It can also increase your gross profit margin without having a negative impact on your profits.
