"Our Take" - Unprofitable Customers

(Past Editions by: Date, Title, Topic)

 
About "Our Take" 
"Our Take" is a collection of daily vignettes covering a wide range of CRM topics. It's an attempt to add our own spin to the world of CRM. We will use the column to share our perspectives, opinions, epiphanies, web nuggets, or quite frankly anything that moves us. Get ready to expect the unexpected. And, don't be shy about sharing your thoughts.
 
 
5/30/06 - Don't Go Away Mad . . . Just Go Away
Today let's talk about those customers that are unprofitable and will most likely remain unprofitable. Generally, the case can be made that they are a drain on resources that could be better applied to more profitable and/or more promising customers. In other words, it would be great if they would just go away.
 
To simplify the situation a bit, let's assume that the unprofitable/unpromising customer was either that way from the start or became that way over time. If they were always a drain with no potential, then perhaps you have a customer acquisition issue. More to the point, you might have marketing programs that are attracting exactly the type of customers that will do nothing but pull down your profitability.
 
How does that happen? Marketing often thinks in terms of numbers - numbers of customers and market share. Marketing is often rewarded for bringing in new customers that result in revenue growth with secondary regard to profit contribution. I'll share more tomorrow about that situation and what can be done about it.
 
Gary Lemke, Publisher
(Share your thoughts)
 
5/31/06 - Don't Go Away Mad . . . Just Go Away - Part II
Let's continue today with where we left off yesterday. How do companies end up with unprofitable customers? One reader summarized the situation with the following analogy:
 
"To use a fishing analogy, the marketing departments are deploying campaigns that cast a wide net and pull in every thing that hits the net and sticks. The bigger the count of organisms, the bigger their "success". It's left to the operations and customer support teams to winnow through the customers that should have been "thrown back" to get to the ones that truly represent a "catch". In the meantime, we've spent a great deal of money, time and effort dealing on activities that only obliquely serve the business."
 
I agree with the reader's suggestion so I will share it with you: "I think most, if not all, businesses would be better off figuring out the "bait" their preferred customers will "bite on" and fish just for those customers and ignore the mass audience for the profitable customer segments. The total cost is typically less once you factor the cost of dealing with the unwanted customer. You also get out of the business (however profitable) of generating a great deal of resentment and animosity towards future potential customers engendered by the profit by penalty model."
 
Gary Lemke, Publisher
(Share your thoughts)
 
6/1/06 - A Reason for Unprofitable Customers
Today I want to do a bit of housekeeping by sharing a few reader comments from the last few days. First, some of you wrote that it is not always marketing's fault for scooping up unprofitable customers with their marketing campaigns. It was pointed out that sales reps often bring in unprofitable customers.
 
I certainly didn't mean to pick on marketing as the sole culprit bringing in unprofitable customers. Apologies to all my fellow marketers. One reader suggested there may be reasons to acquire unprofitable customers. For example:
 
"It's not good to have a large number of unprofitable customers, but maybe a few is OK. We have a few customers who cost us more than we charge for licenses, maintenance and services, yet we want to retain them. They are considered strategic customers, as they serve as great reference sites for new sales deals. In effect, their profitability to our company is indirect, in new product license sales." Good point - referral customers are worth their weight in gold.
 
Gary Lemke, Publisher
(Share your thoughts)