Firing Unprofitable Customers
Introduction
Why let customers go? You spend time, energy and resources to acquire them and your top line metrics look good. But are they costing you money and creating a drag on your customer services resources? Answering this conundrum needs objective analysis and customer profitability is the way forward.
A B2B SaaS company developing laboratory information and quality management systems decided to define and measure client profitability as the determinant as to whether to continue supporting certain customers or not and the levels of effort to expend for those customers it chose to continue working with. Like many similar businesses their client base spans large organisations with 100’s of users to small businesses with a handful of users.
The Opportunity
The degree of effort and cost needed to support customers is rarely linear with customer size. Smaller customers can require disproportionate amounts of your resources to look after in comparison to larger, higher paying customers.
To resolve this dilemma demands analysis of customer profitability which starts with looking at how much time and effort you spend each month across all customers. With simple timesheet analysis and a review of your helpdesk tickets you can quickly assemble a ranking of support activity by customer.
There’s value to be gained already since this will not only show overall activity levels but will highlight those support tickets or support categories which demand most attention and could be addressed through training, documentation or product enhancements.
Once you have the rank-ordered list of activity by customer, working with the finance team you can now apply cost metrics such as hourly costs for resources and overheads. Overlaying costs of support and monthly revenue onto your rank-ordering then delivers a proxy for customer profitability. Don’t worry about accuracy of individual numbers at this stage, it’s about applying a consistent methodology to all customers in order to compare.
Now you have 2 fundamental choices:
Do I let unprofitable customers go; or
Do I increase subscription rates for higher-support customers to get back to profitability
It’s never this straightforward because there may be strategic or other reasons to retain an unprofitable customer – there’s near-term potential for more (profitable) business, they provide high value in unpaid ways (testimonials, references etc.) or other reasons. But it will force the discussion and decision.
A side benefit is the opportunity to revisit your support processes to explore options to reduce support costs, such as customer self-help portals, knowledge bases, chatbots etc.
Customer profitability is a highly valuable exercise that should be repeated at least quarterly. It will inform a range of product and process decisions that will enhance the underlying profitability of your business and likely enhance customer satisfaction.
The Results
The company adoption of customer profitability analysis allowed them to make objective decisions regarding the following:
Which customers to continue supporting and who to let go
Introduction of different support levels with associated subscription rates and how to allocate customers
Quantitative analysis to support customer-specific discussions around contract renewals and subscription rate changes
Product enhancements to positively impact support costs
Creation and maintenance of a knowledge base accessible by customers to promote “self-help” prior to support desk engagement
Enhancement of support protocols, helpdesk ticket prioritisation and transfer between support levels (first and second-line support)
Training and development of support desk personnel
The senior leadership team acknowledged the contribution this made to improved financial performance, increased customer satisfaction scores and more positive general feedback.
