Which customers are worth letting go of? How do you know who your most valuable customers are?
Mike Michalowicz says that an important component of the quality mindset in business is focusing your time, energy, and resources on your most valuable customers. Not every customer is going to be a good customer, so you need to learn how to differentiate between the bad and the good.
Take a look at how to treat customers that will help or hurt your company down the line.
Catering to Your Most Valuable Customers
Many entrepreneurs mistakenly believe that any customer is a good customer. Thus, they overextend themselves and force themselves to constantly deal with frustrating people. In contrast, identifying what a good customer has three main benefits:
1. Your customers will grow increasingly valuable. As you adapt your processes to know how to treat customers that are good and bad, your customers will appreciate your company more, increasing the odds they’ll use your services more often in the future.
2. You’ll attract more high-value customers. Since you know exactly who your desired demographic is, you can market to them more effectively. For instance, instead of putting cheap, generic ads for your business in as many places as possible, you can put more pricey, customized ads in places you know your most valuable demographic will see them.
3. You’ll be happier. You’ll spend your time focusing on customers who are more enjoyable and less frustrating to serve, improving your overall work experience. (Shortform note: This may spark a virtuous cycle. People who are happy at work are more helpful and cooperative, says Gretchen Rubin in The Happiness Project. In turn, your positivity makes other people more helpful and cooperative, further decreasing your frustration and making work more enjoyable.)
These benefits so influence your business’s success that Michalowicz says this component is the most important of the three. Thus, catering to your most valuable customers should be your first priority. We’ll explore Michalowicz’s three-step process for doing so.
| Another Perspective on Catering to Your Customers In Raving Fans, Ken Blanchard and Sheldon Bowles agree that catering to your customers should be your primary focus. While they don’t use the same ranking and prioritization method as Michalowicz, they say you should have a clear vision of how you want your company to operate. That way, you can evaluate your customers’ desires and only work to actualize the ones that align with your vision, instead of getting distracted or burned out trying to actualize all of your customers’ desires. They also agree that increasing customer value and attracting valuable customers are two benefits of providing a great customer experience. However, while Michalowicz frames these benefits as stemming mostly from separate actions—improving your service and improving your marketing—Blanchard and Bowles say they both stem from improving your service. When you continually improve your service, customers are not only more likely to appreciate and remain loyal to your company, but also to become brand advocates, encouraging others to use your company and thus expanding your customer base. To generate this level of enthusiasm, they specify that you must not only give your customers a positive experience, but also continually exceed their expectations. If you succeed, you may not need to place ads at all, as your existing customers will do the marketing for you. |
Step #1: Rank Your Customers by Value
Michalowicz says it’s important to rank your customers because their rank will determine how you should treat them to ensure your company’s success: The more valuable the customer, the more you’ll prioritize their needs and desires.
In this section, we’ll first explore what makes a customer valuable. Then, we’ll discuss the categories of value your customers can fall into and how you should respond to each category.
What Makes a Customer Valuable
We’ve consolidated Michalowicz’s definition of a valuable customer into three metrics:
1. Similar worldview. Valuable customers get along with you well because they have a similar set of rules that they approach life (and business) with. Michalowicz calls these “immutable laws,” as they’re extremely influential and never change. It’s easy and enjoyable to work with people who have similar worldviews, as you’re more likely to want the same things and understand each other. In contrast, you’re more likely to experience misunderstandings and conflict with people who don’t share your rules. You may also feel pressured to change the way you operate—to break your unchangeable rules—to accommodate them. This then leads to internal conflict and unhappiness.
For example, if part of your worldview is “Always take responsibility for your actions,” you wouldn’t work well with people who are focused on protecting themselves from criticism. It would be frustrating to work with them, and they may take advantage of you by blaming you for anything that goes wrong, not just the things you’re actually responsible for. You might then feel tempted to act defensively and refuse to take responsibility at all, contradicting your own worldview and causing internal conflict and unhappiness.
2. Financially trustworthy. Valuable customers use your services regularly, pay their bills on time, and are likely to generate future revenue.
3. Cooperative. Valuable customers maintain good communication and are willing to work with you to resolve any mistakes instead of holding a grudge.
How to Rank Customers
Michalowicz uses a letter-grade system when ranking customers. We’ve divided it into four categories your customers could fall into, and describe how you should respond to each:
1. Most valuable. These customers are almost perfectly aligned with you in all three metrics. You’ll focus on catering to this small, elite group with every decision you make, as they’re the most likely to bring you future revenue and help you succeed. (We’ll discuss how to do this in Step #3.)
2. Valuable. These customers are mostly aligned with you, with only minor differences, and they make up the majority of your customer base. You won’t focus on catering to this group, since you don’t want to diffuse your attention too much, but the decisions you make to benefit your most valuable customers will usually benefit them too.
3. Mediocre. These customers are aligned in some ways, and they don’t harm your company, so you don’t need to fire them right away. However, they’re not particularly helpful to your success, either, so you’ll try to gradually replace them with more valuable customers.
4. Bad. These customers aren’t aligned with you. They drain resources and stop you from succeeding. You’ll fire them immediately to minimize the damage they cause. (We’ll discuss firing bad customers in more detail in the next section).
Step #2: Fire Bad Customers
Once you’ve ranked your customers, Michalowicz says you need to fire the bad ones—the ones who don’t share your values, aren’t financially trustworthy, and aren’t cooperative. As mentioned before, many entrepreneurs struggle with this step because they don’t want to lose any customers. However, the customers in this category actually damage your business: They drain resources, leaving you less time, energy, and funding to devote to your valuable customers who’ll actually help you succeed. By firing these customers—and eliminating the expenses associated with them—you give yourself room to better serve your remaining ones. As discussed, this better service will then attract more valuable customers, helping your company grow.
Michalowicz recommends re-ranking your customers every quarter. This ensures you catch any new bad customers before they can cause much damage. It could also help you decide which mediocre customers to fire when making room for more valuable ones.
Step #3: Continually Improve Your Most Valuable Customers’ Experiences
Once you’ve fired your bad customers, the next step is to improve your most valuable customers’ experiences. This will further increase their value and help your company succeed. We’ll focus on the method Michalowicz spends the most time discussing: turning customers’ dissatisfaction into delight.
You can improve your most valuable customers’ experiences by turning their dissatisfaction into delight—or fulfilling their wish lists, as Michalowicz frames it. Michalowicz says that your customers are likely dissatisfied with your industry in some way. If you can identify what irritates them or what they want done differently, you may be able to alleviate this dissatisfaction. Since these are industrywide problems, being the only one solving them will make your customers happier and make your company more unique and attractive.
Michalowicz suggests interviewing your most valuable customers to identify the reasons for their dissatisfaction. Your questions should be industry-focused, not company-focused, he stresses. If you ask customers what they want your company specifically to change, they may be uncomfortable giving an honest answer. If you focus on the industry as a whole, you’re more likely to get a real answer.
Once you’ve identified why your customers are dissatisfied, brainstorm ways to improve their experiences. The method you use will depend on your industry and the source of dissatisfaction: If you run a grocery store and customers complain about long lines, you may offer self-checkout as a new service, but if they complain about high prices, you may make deals with local farmers to buy produce more cheaply so you can then lower your own prices.
Finally, propose your solution to your most valuable customers, and ask for feedback. Since they’re the ones you’re trying to help, they’re the best people to judge whether your plan will work. Michalowicz says to revise your plan until customers ask follow-up questions like how much the new service would cost or when you’re going to implement the new strategy. These questions show that customers are excited about your solution and that your plan would significantly improve their experience.
