A better question might be—how well do you really know your customers? When working with various security and integration dealers on ways to increase their customer retention and recurring profits, I like to ask employees to tell me exactly how many different kinds of customers they have. As you might imagine, the responses I hear are all over the place. Some tell me they have 50 different kinds of customers. Others tell me they have two; those who pay and those who don’t.
I believe you actually have three kinds: 1. Customers who make you money; 2. Customers who help you break even; and 3. Customers who cost you money.
So let me ask you this: How well do you really know your customers? With very few exceptions, every single company has 2s and 3s and may not even realize it. Many in our industry have been so beaten up by low price; they have dropped margins beyond their ability to generate a fair and reasonable profit in a reasonable amount of time.
Of course we all know that price is always the most important thing to someone. Until value is substantiated that is! When value exceeds price, price is no longer the issue. Still, far too many owners place no value and make absolutely no investment in any sales or customer service training whatsoever. In many cases fear of selling at higher margins has become thoroughly integrated into our business plan.
What does it take to make money today?
As a result of this fact, consumer’s perception of our industry has overwhelmingly become one with a low price mentality. This has greatly contributed to devaluing our industry and our professionalism in the minds of consumers. “Why should I pay you when I can get the same thing for free?” So, we simply subsidize the installation and drop the monthly in exchange for a contract as we continue to embrace lowered expectations of loyalty, customer service and cash flow.
While you may feel the recurring revenue will make up for the installation and in time create profit, the simple fact is that revenue doesn’t equal profit. Profit equals profit. What are some of the things that can happen while we work for one or two years for free as our initial investment in a particular customer amortizes? Customers we invest in typically place less value in us and in our service than do those who invest in us. As a result loyalty goes out the window. Next, how often do you get calls from one of these customers telling you they have been offered a better deal from someone else?
Often times our employee will simply tell the customer that they’re under contract and will have to wait until the term ends before they can cancel service. When the customer pushes it and say’s he’s going to cancel anyway, more often than not the employee agrees to lower or even match a price to save the customer. At the end of the day, your employee has no idea where the profit margin is for this customer let alone whether or not you have even reached the break even point on a subsidized installation.
Why not teach every employee and sales person how to identify your customers, compete on value not on price and overcome the profit hemorrhaging issues that undermine the potential of your business? Is it possible that certain owners don’t even know it themselves? It is unbelievable to me, that a sales driven, service-based, recurring revenue model industry still invests absolutely nothing in sales, customer service, marketing or collections training. Those who do make the investment and earnestly apply the most productive strategies in these four fundamental areas have learned how to create their own economy and continue to thrive in every economic condition. How else will you stimulate your team with energetic ways to increase profits from those customers who are already profitable as well as boost your number 2s from break even to profitable customers?