This series is devoted to turning a business around, reversing business fortunes and setting out a strategy for going forward.
Fire your worst clients
It might come as somewhat of a surprise but that old Pareto effect—the 80/20 rule—will probably work for your client base as well as other situations. If you go through your client list chances are you’ll discover that 80% of your sales come from 20% of your customers. One of my clients had more than 400 active clients and was busting his ass to make them all happy. But we discovered that close to 80% of the sales were coming from about 100 clients and that three particularly large ones—all in the same product line—were contributing margins three to four times higher than the rest. We immediately set about reducing the list and have it down near 300. Needless to say, that project is still ongoing.
Paul McCarthy, sales manager at Konica Minolta Business Solutions (Canada) in Toronto, gave me a list of things that I thought should be included in the roadmap to a better client list. Paul’s top 5 are:
1 Fire clients you no longer need
2 Retain the clients you want and provide a technology that keeps them close
3 Learn how to serve these clients. You have to move from selling them commodity products to selling them real solutions where they’re willing to pay for value
4 Get to know and understand databases. If you’re in control of customer databases and do a good job managing them there’s more likelihood that the client will stick with you
5 Offer dashboard ROI on any and all printed media—and cross media—output so your customers can measure results. You have the opportunity to become a new media trust agent for your clients.
Discarding clients requires focusing and improving other areas, particularly service offerings, sales, and pricing. Identify your most profitable service or product by analyzing true and up-to-date data and discard non-profitable work. And push sales. Capitalize on every opportunity, utilize all marketing resources and develop key routes to market. Establish firm relationships with partners, keep the competition close, and always listen to your customers.
Pat Frey, president at Advanced Press Repair & Design in Merced, California, thinks you should “Re-evaluate your customers: Most of your customers may be a perfect fit for your equipment, abilities and location, but you may have that one who is more of a drain on resources than a profit. This customer tends to get less attention and no one succeeds. Your customers should be your partners; if you help them succeed you will succeed.”
Paring down your client list, means you’ve got to keep your target firmly on sales and marketing. Some owners obstinately hang on to under-performing clients because they’re obsessed with production and maximizing plant utilization. As an accountant, I’m keenly aware of the importance of running a tight production ship but I also know that this cannot be how customers perceive you. If you’re all about maximizing production it won’t take long for clients to realize that it’s all about you and not them. This is really dangerous.
When you focus on fewer clients, you have to price strategically. This is based on value, not cost, and is important because it’s related to product positioning. Furthermore, pricing affects other marketing elements such as product features, channel decisions, and promotion.
I’m often amazed how many firms don’t have a market policy or aren’t able to convey what it is—not only smaller firms but larger ones with hundreds of employees and millions in sales. Developing a pricing strategy perplexes many executives. I guess it’s not surprising: real businesses don’t always follow the pricing strategy models that business schools and books on pricing strategy present. But there are a few basic guidelines that can help take some of the mystery out of the process.
Costs Focus on your current and future, not historical, costs to determine the basis for your pricing strategy
Price sensitivity The price sensitivities of buyers will shift and your pricing strategy must shift with them
Competition Pay attention but don’t copy them. When it comes to pricing they may have no idea what they’re doing
Product lifecycle How you price, and the value you provide for that price, will change as you move through the product lifecycle.
And remember, if you’re having trouble coming up with a marketing strategy please think about bringing in a consultant to help you out. After all, that’s why they’re there and that’s what they do.