Which customers should you keep?
Remember when banks used to treat all of
their personal checking account customers the same?
“Deposit your money and you get a free check
book.”
However, when banks started collecting
data that allowed them to compute the profitability of each
customer, they began to think differently. Some people kept a
lot of money in their checking accounts and many of these
people used ATMs for withdrawals. These customers were very
profitable.
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To determine which customers were the most
valuable, banks had to consider both revenues and costs of each
type of customer. Although banks always knew who had the most
money in their accounts, they had never analyzed the various
costs of different types of customers.
In banks, as in most drycleaners, costs
were averaged out amongst all of their customers. By allocating
costs to each type of customer, banks were able to find out
which customers were the most profitable. It then became easier
to devote more time and effort to the most profitable
customers.
While everyone knows that business incomes
follow the 80/20 rule: 80 percent of income is generated by 20
percent of your customers, customer costs can follow the 90/10
rule: 90 percent of “customer service” costs are
generated by 10 percent of whiny customers. If you reduce the
costs of serving customers whose business does not warrant
additional attention, and spend more time serving customers
whose business does, your overall business will become more
profitable.
The trick is to figure out the real costs
of dealing with each customer. When costs are broken down and
compared with revenues from each customer, their true
profitability can be computed.
One way to do this is to draw a grid with
revenues (high/low) going from top to bottom and customer costs
(low/medium/high) going from left to right. Customers can be
assigned to one of the boxes on the grid and their
profitability determined.
When customers are analyzed
systematically, your goal of higher profits can be seen more
clearly. With unprofitable customers, you need to do three
things.
First, reduce the costs of dealing with
the less profitable customers. These people are draining your
time and resources.
Second, increase the revenues generated
from these customers, like implementing up charges or even
price increases for customers who spend below a certain annual
volume.
Finally, consider ending the relationship
altogether.
The problem with profitable customers is
retaining them, because they are bound to attract the attention
of your competitors. Developing more personalized customer
service is the answer to this problem.
Personalized customer service involves
learning each customer’s preferences (creased sleeves,
shirts bagged individually, etc.). With valuable customers,
personalized service will make them more loyal and willing to
trade with you more frequently.
In determining which customers are worth
the cost of personalized service, consider the lifetime value
of each customer, as well as their current profitability.
Personalized service makes the most sense for customers whose
lifetime value to a cleaner is the highest. So, this level of
service should focus on customers who are currently the most
profitable, likely to be the most profitable in the future, or
likely to remain with your cleaners for the foreseeable future.
The goal of personalized service is to
increase customer satisfaction and to minimize problems. By
engaging in “smarter” relationships, a cleaner will
learn customer’s preferences and develop greater trust.
Every contact with a customer is an opportunity to record
information and learn the preferences of that particular
customer. Even complaints and errors need to be recorded and
not just fixed and forgotten.
Many cleaners are beginning to achieve
this level of service through the use of computers. Data, once
collected, can be used to customize service. In addition, the
Golomb Group can analyze your database to detect patterns that
will suggest better ways to serve different groups of
customers.
By learning customers’ preferences
and focusing on long-term relationships, cleaners can learn
what new and current services best fit their customers’
needs. If a cleaner learns their customers’ preferences
and needs, they will, earn their customer’s trust.
Eventually, it becomes extremely difficult for competitors to
duplicate this relationship.
Dennis McCrory works with The Golomb Group
which provides direct mail and marketing services for
drycleaners. They also produce the following book and video
packages:
• “The Caplan Method of Stain
Removal”
• “The Caplan Method of Shirt
Laundering and Finishing,”
• Also available is McCrory’s
“Pre-employment Screening Kit.”
To order any of these, call The Golomb
Group, (800) 679-5856.
