Business owners are no strangers to hiring and firing. It comes with the territory. Some employees perform well; others do not. The most successful security dealers are not afraid to trim whenever necessary.
Now think about applying the same principle to your customer base. If you are willing to part ways with an employee who is not worth the time, money and effort it takes to make them an effective part of your team, should you consider taking the same approach with customers who often require more than what they are actually worth?
To keep their businesses on a profitable path for the long term, dealers need to look at a strategy for acquiring and firing customers. Making a company stronger by reducing its portfolio seems like an unusual course of action, but it might make sense for dealers who want to maximize their resources by serving customers who bring potential for growth.
In simpler terms, let the weeds die out while the flowers take over.
Anthony K. Tjan, a venture capitalist and frequent contributor to the Harvard Business Review blog, says a little bit of attrition is not a bad thing. He noted that a successful business is not necessarily concerned just with growing revenue — it wants to grow profitable revenue with the right target customer.
Security dealers are always looking for customers who pay their bills on time, or require relatively little service or maintenance. But it remains imperative to aggressively grow a segment of customers with demographics and purchase behaviors who can actually help grow your business over time.
In a post entitled “It’s Time to Fire Some of Your Customers,” Tjan concedes that “firing” is probably too strong of a word; however, he added, “it is a clear reminder that limited resources need to be carefully allocated — and that just because you sell something to someone, it does not necessarily mean it is a good thing.”
Be Selective in Your Sales
Of course, you do not have to “fire” a customer if you never acquire them. Anyone with a green thumb will tell you that the best way to weed a garden is by never giving weeds a chance to take root.
One way to determine a customer’s long-term quality actually starts during the sale — or more specifically, with the credit report. It is not foolproof, but the numbers certainly make sense.
Barbara Holliday, Senior Director of Dealer Services at Monitronics Security, says that FICO scores are a solid indicator of how valuable — or troublesome — a customer might be in the future. Typically, she says, one in four customers with credit scores between 600 and 625 will default on their payments at some point.
That doesn’t necessarily mean you have to reject everyone with a low FICO score, she clarifies, but it should definitely make up only a small part of your portfolio. “Low credit scores are risky business,” Holliday says. “There are many creditworthy consumers, and when you walk away from a low score account, you strengthen the viability of your company.”
Identifying the Weeds
Keeping an eye on quality customer acquisition is only part of the equation. Until someone invents a machine that can automatically identify potentially troublesome customers, dealers will have to rely on good old-fashioned homework. The traditional criteria still apply:
- A low initial purchase or commitment.
- Slow-pay or no-pay.
- High-maintenance, difficult to satisfy, or just downright unpleasant.
- No interest in other offerings other than the basics.
- Lack of interest in technology, which can often be identified during the training process.
Once you begin to identify customers who show little potential for helping you build your business — and even require resources that could be more effectively deployed elsewhere — you do not have to “fire” them right away. Just do not spend too much time or money trying to turn them into great customers.
“It’s tempting to embrace every customer equally,” Tjan notes in his HBR blog. “We want to believe that we can nurture and develop all customers to reach high potential levels over time; however, the data does not support that thesis. It is always tougher to change customer behavior than to find new customers similar to your existing top-buyer profiles.”
Take a good look at your existing accounts. Which customers are taking most of your time and resources? Are those customers really worth the effort it takes to keep them, or would your efforts be better spent on finding new customers with more potential for future sales and RMR?
Finding the Flowers
It also takes some detective work to find customers who offer the greatest upside. Start by combing through your sales data to create a profile of your ideal customer, including demographics. Do not just look at your customer acquisition practices, but also put your existing customer base under a microscope.
For example, sift through your records to find out who spent more in the initial transaction, or to discover which customers actually approached you for products or services. They might be receptive to new offerings in the long-term.
Tell your sales reps to take note if a new customer shows a keen interest in technology, or works in a technology-related field. They could easily be targeted as “first-adopters” for increasingly sophisticated home automation systems, with great upsell and RMR potential down the road.
Now figure out how to make them your biggest fans. Make a special effort to cultivate relationships with these customers. Let them learn more about you, whether it is through telephone contact, marketing collateral, targeted email or social media participation. Keep them informed about your newest offerings and the latest technology. Do not forget about loyalty programs or special incentives. Ideally, they will not only become repeat customers, but loyal and dependable ambassadors of your brand. Above all, make it a point to provide superior customer service to this group.
Ideally, Tjan says, your less-valuable customers will eventually fade away and be replaced by new accounts that fit your quality-based demographic. By directing your resources toward one segment, it will automatically reduce the focus on the lower tier.
He makes a compelling argument that growth is not dependent on quantity of revenue, but about quality of revenue. That is the foundation for RMR, and for the long-term growth of your business.
Robert Ogle is a corporate communications specialist for Monitronics. Tp request more info about the company, please visit www.securityinfowatch.com/10216127.