When you’re in a service business, you have to make sure there’s a good match between the services you offer and the clients you serve. This is true even in a recession!
Way back, I told the story of the two electricians. One was obsessed with the cost of services. He was willing to do a marginal job and make a very small profit in order to simply have a client. I was not a good fit for him. I’m the kind of person that would rather pay a little more, have the job done right, and eliminate re-work before the work starts. The second technician focused on quality first. I’m a much better fit for that approach.
When you have a good sense of who your clients are, you need to accept that many people do not fit your model. Do not feel bad about that. You should not try to help them unless you have a strong belief that they will become your target client. And do not worry that “someone” has to help them. You might even help them find that someone, but you should not lose sleep over the fact that they are not your ideal client.
Here’s a common scenario from my IT consulting business. People would call out of the blue and ask me to fix their computer. But they have never hired me before, and they haven’t actually maintained their computers. Everything about the job makes me see big red flags: Avoid at all costs!
My ideal clients see their technology as an investment. They consider it vital to their business, so they hire a person or company to take care of their computers. When they call, I am happy to go talk to them about how we can help.
But when someone calls and they clearly place no value on their technology, I know every discussion will be about money. And they will think I’m over-charging for everything. That will not be a good relationship, so we need to walk away.
No matter what business you’re in, there are many people out there who literally cannot afford your services. Don’t try to serve people who cannot afford you. And don’t feel bad about it. You and your customers will both be happy when you are a good fit for each other.
Remember: Even if you gave great service to someone who really didn’t want to pay that much, they will repay you by complaining about your company at every opportunity. That’s not good for you in the long run.
You should figure out the annual cost of your services and have a very realistic vision of who can and cannot afford you. Don’t sell to people who can’t afford you. For example, in IT support, a company that brings in $300,000 a year (total revenue) cannot afford to pay for ongoing preventive maintenance of their technology. They don’t have enough free cash to pay us enough money to make it worth our while.
What is the minimum size a company has to be to afford your services? Whatever it is, you should make a note and then figure out how to go get clients who are at or above that threshold. Stop trying to sell to people below that. Don’t lower your rates to try to get clients who aren’t a good fit in the long run.
Here’s an exercise to help find (and possibly remove) clients who are too small for your services.
Open up your QuickBooks, or whatever financial software you use, and you run a report of sales by customer, summary, for the last twelve months. Next, sort that report from highest to lowest and start drawing some lines.
Look at all the people that gave you $250 or less in the last year, or under $1,000 dollars last year. How big is your average client? What percentage of your revenue comes from the top twenty-five clients vs. the bottom twenty-five clients?
No matter what business you’re in, smaller clients take more work per dollar earned than large clients. It’s just a fact of life. If you drop the smallest ten clients, would you notice the difference in revenue, or would you just sell those hours to someone else for more money?
As I’ve mentioned before, you need to start looking at your ideal client. I’ll bet that your five favorite clients are at the top of the list, not the bottom. Those really small clients are expensive for you to have on your books. There is a minimum cost to having a client.
I love studying business models and one of my favorite examples is Costco. Costco has a very specific business model. They looked at what grocery stores do and said, “We don’t want to do that.” When you go to a grocery store, they’re happy to have you come in eight times a day, buy a stick of gum, and put it on your credit card.
Costco looked at that model and said, “It costs us money whenever one of our employees interacts with a customer.” So, what did they do? For starters, they charge people to get in the door. You have to pay for a membership. They literally have somebody standing at the door who keeps you out unless you are a member of the club.
Next, there’s no signage. There is a certain rotation of what they carry on a given day. For you, that means you have to go back and forth, up and down every single aisle. You get the twelve-pack of studded snow tires, you get the ninety-six rolls of toilet paper, and you spend three hundred dollars with every visit.
And you show up once a month.
That’s their business model. They do not want you in that store every day. They want you there once a month to spend $300 or $400. As a result, they have far fewer people coming into their store than the grocery store does, but they are far more profitable than the grocery store.
I encourage you to open your mind to new ways of looking at your clients and your business. Create any business model you want and then go find clients who want to do business that way. I’ve mentioned this before, but it’s important: Create your business model and then find people who want to do business your way.
You don’t have to serve everyone.
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The Absolutely Unbreakable Rules of Service Delivery
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