That is, get rid of your worst customers. Your worst customers are the ones who are price-sensitive, rather than value-conscious.
What’s the difference?
Price-sensitive customers buy based on who offers the lowest price for what they believe are comparable goods and services. They very often buy at the lowest price at the cost of quality, features, benefits, durability, longer-term value, and overall results.
For you, the problem with price-sensitive customers is that they tend to be disloyal when it comes to buying from you again.
They also tend to be the toughest to please and the most likely to be easily dissatisfied.
Value-conscious customers, on the other hand, buy based on trust, relationships, quality, service, outcomes, and the ultimate experience they get from doing business with you. Over the long-term, you establish an ongoing relationship with these customers in which you’re both invested. As a result, they are more likely to be fiercely loyal and supportive of the longer-term success of your business. Though their expectations remain appropriately high, they are more understanding, patient, and forgiving when things don’t go as well as intended.
What’s more, value-conscious consumers:
- Are more likely to become evangelists, telling anyone who will listen about how great your business is.
- Naturally generate qualified and quality referrals to your business.
- Respect your values and approach to doing business.
- Are people whom you usually enjoy working with.
- Sincerely appreciate you and what you do for them.
In short, value-conscious customers give you what I call “enhanced customer lifetime value.” They will outspend your other customers and contribute significantly to the stability and expandability of your business. They are more likely to buy more from you and more often than anyone else.
Here’s a real-life example of enhanced customer lifetime value from my work with a new coaching client:
Bob has run a small business bookkeeping service for the past ten years. He employs several staff members to serve a variety of small businesses, ranging from solopreneurs to multimillion-dollar enterprises. In one of our first conversations, Bob shared that he was struggling with growing his revenue stream. This in spite of a loyal client base, some of whom had been with him since the start of his business.
I inquired about the range of fees that Bob charges his clients and what he provides to them in the way of service. Bob said that some of his clients have made comments such as, “I don’t know what I’d do without you.”
Given the value that Bob’s bookkeeping service provides, it was readily apparent to me that he has been undercharging his clients. When I questioned him, Bob replied that for the past two to three years he has been meaning increase his fees, but just hadn’t felt comfortable following-through.
Why? He said that he still needed to add certain offerings to his business before he felt good about asking his clients for more.
But here’s the real problem: Deep down, Bob didn’t believe in his own worth and, therefore, didn’t have an appropriate appreciation of the value he provides.
After only our second coaching session, my coaching to Bob was this:
- Raise your fees.
- Write a letter to your clients to acknowledge your true gratitude and appreciation of them.
- Include a recap of all the new features you’ve added in recently and include reference to the value you provide them.
Include notice of pending fee increases and to expect a phone call from you to discuss the changes.
Naturally, Bob feared that he’d lose a lot of clients in the process. He was afraid of what his clients would think. But, with my guidance, he did exactly what I coached him to do.
- Bob increased his monthly cash flow by almost 15% after our second coaching call.
- After our third coaching call, he increased his monthly cash flow by approximately 25%–that is, recurring cash flow he can count on month after month without having to market to get new customers.
- In less than one month, he went from a negative cash flow situation (due to recent significant capital expenditures) to a significantly positive cash flow position.
- Rather than being trapped by his limiting fears, concerns, and beliefs, Bob elevated his appreciation of the value that he provides his clients and he upped his confidence (and his bottom line) by charging based on value.
And oh yeah, he did not lose a single client.
Compared to attracting and acquiring new customers, it’s far easier and less costly to retain value-conscious consumers. In this case, Bob has a stable of value-conscious clients. And he proved it.
To get rid of your worst customers, here’s what you need to do:
- Overcome your own fears and limiting beliefs.
- Clearly communicate the value you provide to your buyers.
- Identify the characteristics of your best value-conscious consumers and know who they are.
- Cultivate your relationships with these value-conscious clients and customers.
- Provide great value to them.
- Reinforce the value that they get from using your products and services by reminding them periodically.
- And keep adding to it—then bill ‘em fairly and appropriately for it.
In the baseball movie Field of Dreams, the main character, Ray Kinsella, hears a voice in his cornfield tell him, “If you build it, he will come.” He becomes convinced that he should build a baseball field in the middle of a remote corn field. Shortly thereafter, the ghosts of Shoeless Joe Jackson and the other seven Chicago White Sox players who were banned from baseball for throwing the 1919 World Series appear upon the field.
The phrase from the movie, “Build it and he will come” has been popularized in the business world as “build it and they (customers) will come.”
Many a visionary entrepreneur has been inspired by that “light bulb” moment and arrived with the next million dollar idea that is going to change the world. Driven by sheer inspiration, they proceed to throw all of their time, energy, and resources (read: ‘money’) at developing their product or service. They think that if they build a better mousetrap, people will flock in droves to buy it. “Build it and they will come.”
Well, speaking of “light bulb” moments, let’s see what we can learn from one of the world’s greatest inventors, Thomas Alva Edison. Although the electric light bulb was the invention, which brought him great fame and fortune, Edison was a prolific inventor, whose efforts also included the invention of the phonograph. Ultimately, Edison received a record 1,093 patents. Of these, his very first was for the Electronic Vote-Recorder.
The electrographic what?
While working as a telegrapher in Boston, Edison transcribed copy about congressional proceedings. During these proceedings, voting on the passage of bills was taken by roll-call; after the name of each senator or representative was announced, each would respond with a “yea” or “nay” and the vote was recorded one by one.
Edison noticed how much time was wasted by this process and decided to build a device that would automatically tally the votes. Based on the telegraph, his invention was a technological success and on June 1, 1869, Edison was awarded U.S. Patent #90646 for the Electrographic Vote-Recorder.
Great idea, but is it time to laugh all the way to the bank?
Curiously, neither the Massachusetts legislature nor the United States Congress was interested in the vote-recorder. As Gene Adair recounts in his book Thomas Alva Edison: Inventing the Electric Age:
“As Edison learned, it was an accepted practice in such bodies to filibuster, a process in which lawmakers who oppose a particular bill use various delaying tactics to block its passage. In one of these tactics, opponents of the legislation will demand time-consuming roll-call votes on one irrelevant motion after another. Edison’s machine, by speeding up the vote-taking process, would blunt the effectiveness of this political weapon—something most legislators were reluctant to do.
Edison vowed right then that he would only make inventions for which there was a ready demand. In later years, he counted his experience with the vote recorder as one of the most important lessons he ever learned.”
Pre-sell: The antidote to being blinded by the flash of the “light bulb.”
In my experience, I’ve seen far too many entrepreneurs and small business owners develop and offer a new product or service, only to find out that no one is particularly interested in using it, much less paying for it.
So, the next time you have a brilliant “light bulb” idea, think of Thomas Edison. Then go out and find out from your potential buyers if they’d want to buy your next world-changing idea. It’s a simple concept called “pre-selling.”
Sell the concept of the product or service before you invest in building it. If no one expresses any significant interest, refine your offering and/or your approach to presenting its value. If there is interest, you’ll have seed money to develop your offering. And you’ll know first-hand what to build into the product/service because your early buyers have told you.
Hell, there are no rules here—we’re trying to accomplish something.
Well, there is perhaps just one rule Thomas: Unless you want to be successful in business by accident, “build it and they will come” works only if you know they want it in the first place!
Last Monday I was really sweating it out. The colleagues of my mastermind group, all top entrepreneurs, had me on the grill.
I had just finished telling them the UnReasonablegoals my two companies were going to achieve in 2011.
And they weren’t buying it.
One member of our group, Michael Margolis of Get Storied and the “Dean of Story University” for businesses and entrepreneurs said, “Stefan, this all sounds cool, but it is lacking your passion.”
“What are you willing to fight for in your businesses?” he continued. “What is so core to your existence that you’ll do whatever it takes to make it happen?”
Great question! I was embarrassed I didn’t have an answer, though. And told them I would have it in a week.
The answer to Michael’s question is crucial to anyone committed to achieving the UnReasonable.
Look at what the citizens in Egypt have recently accomplished in just 18 days. Tunisia. And now possibly Libya as well as several others.
What they were willing to fight for was to have a say in their lives. And they were willing to risk their lives for it.
Now imagine the impact your business would have when you approach it from the same perspective!
Don’t be confused with what you are willing to fight for and your company’s vision/mission statement. It is something core and dear to you and your employees.
It is what you are all about.
The benefits for your business:
- Complete Focus–with clarity on what is core to you and your business. Your rapid response system will jump up to the situations as they come up.
- Clear Target Market–when you know what is most near-and-dear to you and your business you’ll be clearer on whom to aim your product/service at.
- Powerful Team–imagine how quickly you can mobilize a team around your core beliefs, once articulated. People love following a leader clear on their values.
- Engaged Stakeholders–those whom resonate with these core beliefs will most likely quickly jump on board.
- UnReasonable Achievements–with a powerful why there is no telling what the ensuing energy and inspiration will create. It might even amaze you!
Knowing the impact of having an answer to Michael’s question, I spent the week contemplating what I was willing to fight for. I meditated on it and ran it past several people. And got tons of coaching on it.
And after several long days of turmoil, I suddenly got it.
I am willing to fight for those committed to being the best they can be with the environment and society.
Immediately after writing this down I saw how my entire life has been devoted to working with those committed to this crucial purpose.
And the hairs on the back of my neck were standing up.
Action Steps for the Week
Planned out your business goals for the year? How do you feel about it? Feel like you’re playing UnReasonably? Super-excited about achieving them?
What are YOU willing to fight for? If there were only ONE thing that is the most important to you in regards to your business, what is it?
It’s that thing you will protect with everything you have and too sacred to leave behind.
Be with this.
Come up with a list of possibilities. Narrow them down by asking yourself: which of the (first) two on your list is more important? The next two? And so on until there is only one left.
Then be with this one core thing you are willing to fight for until you feel it. Feel the energy and passion around it? No feeling, go back and try again.
And when you get it you will know. Your creative juices and energy will start to take your body over. You will more easily create a new set of goals and?go to UnReasonable lengths to achieve them.
Just have your seat belt on!