Not all Customers are Equal

One of the great things about CRM tools is that the good ones provide some great data analysis capabilities.

You can dissect your customer data so many ways and so long as the data you have in the system is accurate and orderly, you can get some extremely useful information out. For example, you can find the customer relationships which are profitable to your company, and more importantly the ones which are not.

Focusing on the Money

For some businesses (or sales and marketing people), market share is everything. They don't care about profit so long as they own the market. That's great in the short term but sooner or later you have to turn that substantial customerbase into a profitable one. And you have to admit that there are some customers who simply cost your business money to service them.

Sometimes the 'unprofitable' customers are those who tie up your customer service people with frivolous complaints or comments. They waste your colleagues' time. It might be that they refuse to move to a new version of your product because their model "is just fine thanks!"

Whatever it might be, there are times you must walk away from the customer, whether it is an outright refusal to service them further or to put into place more expensive contracts for service which make it unreasonable to continue purchasing from your organisation.

Part of the problem with the Dotcom boom was that many companies focused on marketshare over profit. The idea was to build up a customerbase at whatever the cost because some day down the track all those unprofitable customers would magically turn into profitable customers. Yes, that can happen - banks have done this by raising fees and charges on their products with the knowledge that people are loathe to change banks - but it is not always the case.

Find Your Niche

Knowing the costs associated with looking after customers, you need to determine who you should target. For example, if your product is something in IT that takes a bit of integration work to get it up and running and therefore requires some funding up front, it is probably not going to work well in the SOHO and lower end SME market.

I know of a company where there was an ongoing discussion about whether to chase outright market share or leave the small prospects alone as the costs in servicing small clients far outweighed the larger clients who had greater expertise and thus reduced the burden on the customer service staff of the company. They had a large niche but there alot of other companies with smaller niches doing well.

Luxury brand are the best example. Look at Ferrari. They only make 4,500 cars per annum. They have a waiting list for some of their latest models. But are they going to ramp up to pump out many more cars? No. To make many more cars would dilute their image. A Ferrari is a special car. Not everyone can have a Ferrari.

So look at your customerbase, look at what type of customer is making you money and what kind is not. With the unprofitable customer, either move them on or adjust the relationship so it becomes profitable for you. Then adjust your marketing to target the types of prospects who will make you money, not send you broke.