What happens when your plane becomes filled with too many “C,” “D,” and “F” customers? Many consultants to firms estimate that the average firm contains between 10 and 40 percent of “F” customers. It is never easy, but it is necessary, to remove these customers from your firm. Start with those customers whose personalities clash with the culture of your firm, or whose character is in question. Once that is completed, then you can focus on removing other low-valued customers (such as the “Cs” and “Ds”). These customers are usually the ones who complain most vociferously about your price; and the debilitating effect is that we tend to listen to them the most and this effects how we price our “A” and “B” customers. One caveat: Be sure you have done everything within your power to turn a low-value customer into a high-value customer. The fact of the matter is, your customers are not going to get better until you do.
All that said, how should you fire a customer? There are many strategies, some more effective than others. Many firms in the early days of implementing this strategy would simply raise their prices by a factor of two or four, and to their surprise, a super-majority of the customers remained with the firm (an indicator of just how much money professional firms leave on the table through suboptimal hourly billing).
Nevertheless, it is strongly advised that you not utilize this strategy. The goal is to remove the customers, not simply increase their price. Getting two or four times more from an “F” customer does not make him a “C,” “B,” or “A” customer (this is the ethic of the world’s oldest profession, not of true professionals).
A phone call or a meeting is the best—and most dignified—strategy. You may line up other professionals as potential referral sources (one of your “D” or “F” customers could be his “A” or “B” customer); or, some firms have even sold off these customers to other firms. Here is an example from a CPA firm of a possible conversation you might have:
“Mary, we need to talk about how well we’re working together. We need to be sure that the range of services we offer matches your needs. Here in the firm we want to work with people where we can add significant value to their business, rather than just crunching some numbers and filling in some tax returns for them.
“This means we are reducing the number of clients we work with and increasing the range of services we provide for them. We’re working with them on growing their businesses by offering consultative services. Naturally, this means that our price levels are increasing, too. Many of our clients are comfortable with that extra investment because of the value we are providing them in return.
“Mary, unless I’m very mistaken we simply can’t provide you with that value. It seems to me that your needs would be better served by an accountant who just wants to stick to the numbers. How do you feel about that?”
The Forced Churn
In the mid-1990s, Lake Tahoe began a major renovation, where many older motels, stores, and other buildings were bulldozed down by the lake, just on the California side of the state line. A local newspaper article claimed that for every new room added, somewhere between two and three would be lost. Obviously, the developers were shifting up the value curve by constructing higher-end hotels, time-shares, condominiums, and so forth. Why shouldn’t (some) firms remove somewhere between one and four customers for every new one added? This led to the concept of what we have since labeled the forced churn.
As a way to upgrade your firm’s customer base from “C,” “D,” and “F” customers, each time a new customer is obtained, you would fire somewhere between one to four old customers. Of course, the exact ratio would depend on how many “C,” “D,” and “F” customers your firm has and what factor the leaders are comfortable with.
Not only would this free up capacity to serve new customers, it would shift the firm up the value curve, allowing your plane to add more full-fare coach, business-class, and first-class seats. By implementing this strategy gradually, many firms feel more comfortable upgrading their customer base, and their sense of security is not jeopardized by firing a large number of customers all at once.
Tom Peters is fond of making this point: “It’s axiomatic: You’re as good—or as bad—as the character of your Customer List. In a very real sense, you are your Customer List.”
Our colleague Tim Williams likes to say that a firm is defined by the customers it doesn’t have. The most successful firms in the world today turn away more customers than they accept because they have a rigorous prequalifying process and they understand that, ultimately, bad customers drive out good customers.
Tools to Help You Get There
During our live show (the recording is linked at the top of this post), we referenced several tools to help you get to a better understanding of your customer mix.
The Customer Likability Score
