In the second article in the Post-Pandemic Reboot series, we discuss customer base management and why companies should consider dropping clients—not adding them—as they navigate the post-COVID landscape.
Many of today’s workplace trends—eCommerce, remote work, virtual meetings—were well underway before the COVID-19 virus walloped us all, but they’ve since moved to warp speed.
Our personal lives, on the other hand, have seen completely new trends emerge. How many of us will be compelled to visit a bank branch any time soon, inspect that head of lettuce at the grocery store, or line up for tickets to the next game?
Much like these new dilemmas in our everyday life (curb-side pick-up anyone?) we also need to start scrutinizing our businesses—the models and mechanisms that have historically supported them—and given the environment within which we find ourselves today, make some tough decisions.
Two months ago, dealing with a difficult client was chalked up as the cost of doing business—after all, they were bringing in much needed revenue. However, in this new landscape—littered with reduced resources, dispersed teams and uncertainty—dropping problematic clients might be your best move.
Customer base management implores a focus on your very best customers. It may seem counterintuitive, but these are the relationships that will power your business forward. They are the clients that trust you, they appreciate and understand your business, and they are the ones most likely to buy from you again and again—even your new offerings.
Customer base management
Base management is much more than putting the customer first. There’s a discipline to the customer relationship that implores businesses to identify and focus on their best customers.
Why are some customers more profitable, reliable, and supportive of their vendors than others? Essentially, these are the customers who understand the value you bring to their business and they’re prepared to foster that relationship by investing in it and in you.
What do your best customers look like? Typically, they:
- invest in key vendor relationships—developing trust and common purpose, which in turn enhance service levels for the end user
- are collaborative in nature and recognize the importance of fostering a financially healthy and reliable supply chains
- believe that sharing risk with business partners is the best means to innovate
- commit to suppliers over the long-term—contributing to integrated models for better forecasting, resource planning, and distribution
These are characterizations, but a deep analysis of your customer base will show a strong correlation among length of relationship, consistency in payment history, breadth of products purchased, and margins earned. That’s why it’s key to concentrate on doing more with fewer customers. Think about how you will retain your core clients by investing scarce resources where you will get the greatest upside down the road.
Retain or acquire?
This is the buy-or-build analogy applied in the customer realm. As business owners find their footing in the post-COVID economy, many will learn the hard way that time and expense should be applied first to enhancing relationships with existing customers and only second to chasing those tempting new wins.
Stated in financial terms, the cost of retention is lower than the cost of acquisition when it comes to building a business and driving growth. It’s simply cheaper to keep a good customer happy than to entice a new one to come on board. Of course, the flip-side is true too—losing an existing customer can leave a big hole to fill. That’s why recurring-revenue businesses that are successful often spring to attention whenever a long-time customer threatens to move.
It’s a different equation with new customer prospects, which will invariably look to cover their cost of switching by insisting on concessions from you. They may not appreciate the value-add you bring—which is understandable if you haven’t yet learned enough about the new customer to determine what your value-add can be. Granted, every business looks to grow—but the analysis that goes into customer acquisition should be as much about financial discipline as it is about marketing effort.
New offerings to old customers
The same rationale applies to new products and services you introduce for these changing times. Your existing customers are the ones who will be most willing to try your new and innovative offerings. That’s because they’re most familiar with you and they trust you. You have real brand equity with your most loyal and stalwart customers and this brand equity in turn leads to brand permission.
It’s also very likely that your new suite of services has been developed with your customer’s needs and gaps in mind. And they’re the ones who are prepared to invest and collaborate with you because they want you to succeed.
Dealing with your “worst” customers
Stratifying your customers from best to worst also uncovers the relationships that patently make no sense to continue. Your margins and buying patterns are key identifiers here, but so are the behaviours that define the relationship. This is where we find customers that consistently pay late, charge penalties, request monetary concessions or incremental (free) services, insist on repeated competitive tenders or simply aren’t cultivating ways to work together. The fallout is that relationships with your worst customers can become downright toxic if you’re constantly being put through the wringer, since there’s no prospect of ever making them happy or making you money. Better to let your competitors take them on.
It’s never fun firing a customer and in fairness, your customer deserves to hear the facts as you lay them out. There’s always some possibility, however remote, that they will come to reason or perhaps forego their bluff. At the end of the day, both parties—you and your customer—need to make a business decision whether it makes sense to continue.
Doing more for fewer
We are witnessing an era of massive business destruction, where the survivors will be those who can consolidate around their base. At the same time, businesses will be called upon to innovate in response to new buyer expectations. On both counts, customer base management implores a focus on your best customers. That’s where you’ll find the relationships that provide support and reward for your efforts. And its where you’ll have the greatest equity to introduce ideas to address changed buying patterns and delivery channels. It can mean doing more for fewer customers, but it will add greater lifetime value to your business.
Adam W. Silver is a Managing Director of the Performance Acceleration practice at Farber. The Performance Acceleration practice helps executives and boards overcome operational and strategic challenges to uncover potential and unleash performance. Adam can be reached at 416.496.3734 and firstname.lastname@example.org.