Yes! A potential customer is interested in your product or service. You feel enthusiastic, so you call them, plan a meeting and work towards an order.
Once the purchase order is signed, it’s time to send that first invoice. And that’s when the misery starts. Fielding the daily calls from your customer who has questions, lots of questions.
He demands all your attention. After three months, that first invoice has still not been paid. Your team has had it with this customer. If only you had said NO to this customer!
Having lots of customers is nice, but having the wrong customers can be terrible. So say NO to customers that are a bad fit for your company.
Define your perfect customer (and your worst customer)
I spent two years working as the Marketing Director of a software company, with 300,000 daily users on average. I started mapping the ideal customer to help my marketing team focus.
We relied on three important criteria for this:
- Turnover and FTE
- Industry
- Relationship with the hassle that we solve
That’s how we discovered that our ideal customer employed a workforce of more than 100 employees, was a manufacturing company and had to deal with a lot of external regulatory pressure as a result of safety and quality requirements.
Discussions with our service and support desk taught us that smaller companies mainly cost us money.
The software revenue was lower for companies with less than 100 employees. After a few calls to our service desk, the margin for this type of company had already evaporated.
It also proved very difficult to keep this type of customer happy. Which stood to reason, because we spent less time on this customer group since maintenance discussions were just not profitable.
By mapping our ideal customer, we also had a profile of our worst customer. This information proved very useful too.
Start from the four customer types.
The next step brought even more clarity. We divided our customers into different customer types. We used Derrick Philippe Gosselin‘s model for this. He distinguishes between
- Transactional customers. These customers have low customer value and limited potential for the future. You should try to avoid these customers where possible. These are the kind of customers you must say NO to.
- Large customers. While this group of customers has high customer value, there is no way of further expanding their value with upsell or deepsell. Because these are valuable customers, it is vital that you have maintenance discussions with them to guarantee continuity.
- Development customers. This is a very interesting group. It has plenty of potential for revenue growth. A development customer can be further developed with upsell or deepsell. Spend time on these customers. It will definitely pay off!
- Strategic customers. These are the companies that are the most valuable for your organization, now and in the future. They generate a lot of revenue, are a reference, and are your ambassador. Find ways of developing the collaboration, for example in a partnership. Do everything necessary to cherish your strategic customers.
Once we had divided our customer base into these four groups, we immediately knew how we needed to focus on these four types of customers. And how we wanted to approach the customers in the first group.
How much does a new customer cost?
Finally, you need to understand how much acquiring a new customer will cost you. This is easy to calculate. Start by looking at how much you spend on marketing and sales for a specific customer.
Divide the annual cost by the annual revenue from this customer.
The result of this division is crystal-clear. Some customers just aren’t right for you. Is the acquisition cost high and the revenue low?
Then don’t pay any attention to this group any longer or think of ways of reducing your acquisition cost for this group. For example with the further automation of your marketing and sales process.
And if this doesn’t work, then you need to start saying NO.
Good luck!