Stop Chasing Every Customer — Chase the Right Ones
If you are in business, it is important to understand this:
You are not right for every customer, and not every customer is right for the way you do business.
A bad customer can look profitable right up until you count the time, stress, discounts, write-offs and unpaid invoices.
So the real question is not always:
How do we get more customers?
Sometimes it is:
What type of customer do we actually want more of?
Not all revenue is good revenue
When conditions are tight, many businesses naturally look for more customers.
Sometimes that is exactly what is required.
But if you have not worked out what a good customer looks like, you can end up chasing anyone who will say yes.
That often means:
- Discounting too quickly
- Bending your processes
- Accepting poor payment behaviour
- Putting up with poor treatment
- Using too much staff time on work that is barely profitable
Over time, that wears down your people, systems, margins and patience.
Revenue alone does not tell you whether a customer is actually good for the business.
What does a good customer look like?
The biggest customer is not always the best customer.
A good customer will often:
- Pay on time
- Respect your process
- Value the work
- Communicate properly
- Be profitable to service
- Fit reasonably well within your systems
That does not mean you only want easy customers.
Some of your best customers will challenge you, ask good questions and push you to improve.
The difference is that they challenge the business in the right way.
A poor-fit customer may bring in revenue, but also consume far too much time, effort and headspace.
Once you properly measure what is involved, the profit can look very different.
The 80:20 rule is worth thinking about
The 80:20 rule is the general idea that a relatively small proportion of inputs can often produce a large proportion of the results.
It will not literally be 80:20 in every business, but the principle is useful.
A relatively small group of customers may generate much of your:
- Profit
- Quality work
- Referrals
- Long-term relationships
Another group may be responsible for a disproportionate amount of:
- Chasing
- Complaints
- Write-offs
- Staff frustration
The important question is whether you know which group is which.
If not, it is very easy to spend your best people and energy on your least valuable customers.
That is not a great business model.
Your best customers deserve your attention
Businesses often spend enormous energy trying to win the next customer while taking good existing customers for granted.
That can be backwards.
Your best customers deserve good service, communication and systems because they are valuable to the business.
Understanding your ideal customer should also help shape:
- Pricing
- Payment terms
- Onboarding
- Service standards
- Where staff spend their time
You are effectively building the business around the type of customers you want more of.
Customers tend to refer similar customers
There is also a flow-on effect.
Good customers often refer similar people.
Poor-fit customers can do the same.
If your better customers introduce people who value your work, respect your process and pay properly, the quality of your customer base can improve over time.
Keep accepting poor-fit customers, and you may slowly build a business you do not particularly enjoy running.
Nobody goes into business hoping to build themselves a headache.
At least, not intentionally.
Take a proper look at your customer base
You do not need to sack half your customers overnight.
That is not the point.
Start by asking:
- Who are our best customers?
- Who pays well and on time?
- Who respects our process?
- Who is genuinely profitable?
- Who creates good work for the team?
- Who refers the right people?
Then ask:
- Who consumes too much time?
- Who constantly pushes on price?
- Who ignores the process?
- Who creates stress that is not justified by the revenue?
Once you understand the difference, you can make better decisions.
That may mean spending more time looking after your better customers, improving terms, changing pricing or being more selective about new work.
Better revenue beats more revenue
Growth for the sake of growth is not always a win.
What you really want is profitable and sustainable revenue from customers who suit the business and allow your team to do good work.
So before deciding you need more customers, ask:
Do we need more customers — or more of the right customers?
That distinction can change the quality of the whole business over time.
If you have seen the 80:20 rule play out in your own business, I would be interested to hear your experience.
– Andy Teece
Disclaimer: This article provides general information only and does not take into account your personal circumstances. It is not financial or tax advice. You should seek independent advice from a qualified professional before making decisions about tax, legal or financial planning matters, along with loan structures or entity structure.
