“2011 will be my firm’s best year ever even though we signed up the least amount of new customers in years and stopped providing service to a bunch of our existing customers this year.”
I was talking with Walter this past Friday afternoon, a long-time New York business owner who appeared amazed as the words were coming out of his mouth, so I called him on it.
“Walter, you almost don’t believe it yourself?”
“I double checked it Jeff, and 2011 is our best year ever in terms of revenue and profitability, and I expect the growth in 2012 to be even better than 2011. We are in great shape, the staff is motivated and I’m so excited about the future.”
“I don’t get it Walter, less customers signing up, higher churn of existing customers, and 2011 is better than ever, you better triple check those numbers or perhaps get a different accountant,” I joked.
“It all makes sense Jeff, this was all a conscious choice that I put in motion a few years back – you got time for me to explain?”
“Sure Walter.”
“Well Jeff, when I first launched my business about nine or ten years back, I focused on getting clients both large and small. Since I was a startup without a track record, most of my clients were on the smaller side - paying the minimum fee or close to it. This worked well for the first couple of years as I worked out protocols on fulfillment and hired staff to take care of selling and fulfilling my firm’s offer.”
“Things started to break down for me about four years ago, when I was no longer able to move the needle in my business.”
“Move the needle Walter? I think I know what you mean, but, can you be more specific?”
“Sure Jeff, although my firm was a much different company than when we first started, for the most part we were still signing up the same type of customer. Also, for the most part my sales team was focused on bringing in these clients because it was what we had always done. Unfortunately, these small, unsophisticated clients were the most difficult for the operations team to service. So, for a couple years in a row, I was growing my firm into a less viable position each year and I had no clue other than I had a certain uneasiness in my stomach when reviewing the books each year until the economy tanked in 2009.”
“How did the economy tanking in 2009 help you Walter?”
“Don’t get me wrong, Jeff, the economy tanking was terrible for business. Companies downsizing, cutting expenses, and going out of business was a daily occurrence. We lost lots of customers but the turmoil enabled me to take a look at our offer and realize which clients were more valuable for my company and also which companies we help the most. It turned out that based on the evolution of our offer, we were no longer setup to profitably handle a significant portion of our existing customer base. The customers that were the most profitable for us were the customers that valued us the most and considered us “cheap” while the customers who were unprofitable for us thought of us as “expensive.” Over the course of my first six or seven years in business I had designed, built, and trained my staff to handle customers that considered us “cheap” or to say it better, a great value, yet, my sales team, including me were signing up clients that had to stretch to afford us, which made it painful for them and even more painful for my fulfillment staff.
“So what did you do differently?”
“Starting in early 2010, I made two huge changes. First, I started to purposely quit the clients who were expensive for us to fulfill and who considered us expensive. Second, I reoriented the sales team to focus on customers that were a great fit for our fulfillment team. The customers we now focus on gladly pay more than competitive offers, because our offer is a much better fit for what is important to them. Since implementing those two fundamental changes and rippling it throughout my company, we have shed a number of unprofitable clients and gained a number of the right kind of clients who have been enthusiastic supporters of us. And the best part is…”
“Higher revenue and profitability?” I excitedly jumped in.
“Not quite Jeff, though great guess. The best part is my staff is thrilled AND our Net Promoter Score (NPS) score, which as you know is focused on measuring clients recommending us to colleagues has gone up twenty points in the last two years. ”
“That’s awesome Walter, love it. I am sure the improved NPS score will contribute to a great 2012 as well.”
If you haven’t done so recently, review your current offer and business model compared to your existing client base as well as the goals and incentives of your sales team and then make adjustments so that what you sell is what you are designed to fulfill.
Great post. It is difficult to commit to and execute a strategy where you "fire" difficult or unprofitable clients, but doing so can produce greater efficiency, focus and growth. Consider firing your 10% "worst" clients every year.
Posted by: Mike Steger | 12/06/2011 at 12:35 PM
Thanks for the comment Mike.
Posted by: Jeff Silbert | 12/06/2011 at 03:25 PM