Ged: [00:00:00] Welcome back to podcast. The podcast where we tackle an gnarly but intriguing topic each episode, so we pick the topic at random, we shuffle the deck of cards and see what pops up. Shall we shuffle the deck?
Milan: And we have the core customer card. It’s a topic that, will be very dear and a near to any Metronomics coach and any Metronomics client because we are working on that pretty early in the engagement with customers, right?
Ged: Absolutely. And there is this belief that you, that customers are always right and I passionately disagree with that. And you often have customers that are really, really hard to keep happy. Have you ever experienced that Mulah?
Milan: Who hasn’t, you know, I think it’s probably the question, you know, but what you just said, the question is, is the right customer always right? You know, that’s the question. So let’s talk about the right customer. Yeah, I think that everybody. [00:01:00] Ever trying to build a business, you know, in the beginning you take everything right?
Ged: You do.
Milan: Pretty common. Like anybody who’s willing to buy is, you know a Monty Python would sink. You know, every elite is precious or sacred, right? But the point is that sooner or later. You’ll end up with a list of customers and some of them are just really, really hard to keep happy. And you know, I think we picked it thus this from, t boa, right.
The, the whole idea of try to. Rank the customers by their happiness. Whatever, whatever research you do, whatever, whatever metrics you use, it doesn’t really matter. Let’s say one to seven for sake of argument, and then look at how much effort a company would be spending or the team would be spending to take the unhappy ones, you know, the, like the, the, the ones and twos, and try to move them a little bit higher, a little bit higher, and how much. What, what the different [00:02:00] return on investment or return on effort you get. If you try to take the fives, you know, the pretty happy ones and make them fans, you know, move them, move them onto the sevens. So the card is talking, talking about debt, right? And about how. The return on that investment is not in those two steps you get, but in how many of those ideal customers you get that are super happy because there will be your source of, referrals.
There will be the one who will give you the best references. And honestly, it’s probably the ones that your team will enjoy working with most.
Ged:. So I mean, in, in your card, you know, you talk about this, you know, ranking of one to seven. I mean, I, I sort of bring a different dimension into it as well. So I look at which customers are most profitable, not most revenue, but the most profitable. And then I overlay onto that, you know how much you like working with them.
So then you’ve got two dimensions. You know, the, any client who [00:03:00] is really profitable for you and that you also love working with, you know, is probably gonna meet the profile for your core customer. So, so then it’s a question of understanding, you know, how do you actually characterize what someone like that looks like?
You know, how do you say, well, okay, you know, they make, they make us money. Profit and we love working with them. So now let’s look at that individ, that individual, that company, that individual, the person, the people we deal with and try and understand the characteristics that make them so nice to work with and so profitable.
’cause once you can identify that, you can go and start to look for other people that fit those same criteria. And if you crack that code, you know, you can focus all of your marketing. All of your sales, all of your customer service, energy, resources onto that particular core customer. And when, when I first introduced this notion to the clients that I work with, the reaction I normally get is, well, you know, we’ve, we’ve probably only [00:04:00] got about 30% of customers like that, you know, but, you know, business is business.
You know, we can’t turn the money down, we can’t turn the revenue down for the others
Milan: Really,
Ged: Now. And it takes a while for this notion to sink in. It takes a while for them to say, actually, yeah, you know, these, these.
Milan: Preparedness and
Ged: People, they don’t actually contribute at all. All they do is suck up energy and resources.
Now, and if you, if you can do that analysis around profitability and you know, let’s face it, most companies cannot do that analysis. They don’t know which com, which clients are profitable and which ones are not. But if you can get to that level. You’ll probably find that about 20% of your clients’ customers are actually costing you money to serve.
By the time you’ve factored in all of the resources involved in winning the deal, delivering the deal, customer service, handling complaints and moans and things like that, they’re actually costing you money. So there’s a great quote out there. The easiest way to make more money is [00:05:00] to stop losing money.
If you can get rid of that, that 10 to 20% of customers who are costing you money, then all of a sudden, sure, your revenue will dip for a while, but you’ll free up all this resource, all this energy that you can then direct to the customers that really love what you do, your core customers.
Milan: Plus, you know, chances are that your p and l is going to go up right there and then, right? Because again, you are, eliminating activities that cost you money that is not actually bringing bringing any profit thing that, you know, I, I was really tempted to interrupt you at a second. But then, then you kinda corrected yourself at one point. Oh crap. You were talking about. The core customer as a company or person, but really we are thinking about a person, right? That it’s really, really important. When people do business with people, not with companies. The people are the ones who are making the decision. So you’re looking at when defining a core customer, really who they are, yeah, what type of company they work for, [00:06:00] and in what role is part of their description. But really the key is to think about a person and what is it? It for them. Right? What is it that, what is it? What is the pain? What is the need that you are you are responding to and why they love you?
Ged: Have you had pushback against that, as in No. No. Well, we, we’ve gotta think about the company, not the individual. I, I get that all the time.
Milan: I just wanted to say that I don’t think that I’ve ever walked into a boardroom where this wouldn’t be the opening gambit. You know, takes a while to come, to come around that idea the same way it, takes a while to go around that idea that some customers we just shouldn’t have. On the other hand, you know, I was just very, very pleasantly surprised by a company that I work with where, there were some changes to, to leadership, but they literally said you know. Only about, and they use the ideal customer profile terminology, which is [00:07:00] close, but not identical, but they’re basically saying, yeah, you know, only about 40% of our customers are actually are ICPs. So in probably a year or two, we won’t have the other ones. Right, and just, and just facing that, that it’s just not worthy effort keeping them, that, if you put all the mights of the company behind that one customer or that, that one profile, the people you can do the best job for and who are going to buy from you at the highest profit, that multiplication effect, that leverage is massive.
Right.
Ged: Understand who fits in that profile. I mean, the way I characterize a core customer is, is someone who is prepared to pay your premium, because you are not gonna be the cheapest person out there. You know, they buy from you again and again. They come back, they buy more, they, you know, they sub [00:08:00] subscription, which they’re happy to pay or
they refer you to others. As in, they’ll speak to other people that they’re in business with and says, ah, you know, you’ve gotta work with these guys. They’re awesome. Yeah. Yeah.
And the other thing is you love working with them. You love working with, with them, and they love working with you. So if you can identify who in your client portfolio meets those criteria, then you’re a fair way to identifying the characteristics of your core customer. So then it’s just a question of going to find others.
There’s a, there’s a great story about, a pet food company in the US and this is going back a while. You know, probably 10, 15, maybe 20 years ago. And they, they, they’d niched, they’d made a decision to niche right down. So they didn’t just make pet food. They made dog food, but they didn’t just make dog food.
They made dog food for owners who like to run, but not just that they like to run with their dogs. So this dog food was formulated. To give the dogs the energy and the [00:09:00] nutrition and all the vitamins and everything else so they would be able to run with their owners. And because they were niche and because they had such a clear identity of their core customer, they knew exactly where to find them.
You know, they, they’d set up stands in parks and hand out free samples of their dog food to people who are running with their dogs. Genius. Yeah.
Milan: Brilliant. No, no, that, that is brilliant.. So in your practice jet, how do you go about hi helping your clients? Because I think that, you know, at this point, the listener will be, okay, great. So how do I find out who is my core customer and how to go about it?
Ged: Yep. So the way I do it is it’s a several step process. So, and, and I, I get some really funny looks going through this process because we are really, really challenging some deep held business beliefs that people don’t really wanna let go. So the first thing I do is I say, okay, think about [00:10:00] customer that you love working with and shout out the name.
Now, and they’ll, they’ll shout out you know, know Ray’s hardware. No love working with them. So, okay, so it’s not actually Ray’s hardware, it’s Ray. That you love working with, is that right? Oh, no, no. Ray is the, the original founder, he’s passed away now, so it’s now just a brand. The, the, the person we actually love working with called Bob.
Okay. So, so Bob is a core customer you love working with him, comes back and he no, buys from you again and refers you to other Yeah, yeah. All those things. All those things. Okay. So I then. Take that person. And then we’re trying to identify the psychographics, not just the demographics, the psychographics of Bob, you know, is, is it, is he forties to fifties?
Does he love fast cars? You know, does he like, you know, riding with horses? What, what defines him as an individual, a person, an individual. And then I ask the question of the team that I’m working with, you know, what are the three [00:11:00] things that Bob wants from you? Now, what are the three things, the three key things that Bob is looking to get from you?
Then the question I’m asking is, how do you meet those three needs? And if you can’t meet those three primary needs, then you’ve probably got some something to work on on your product or your service. But if you get to that point, you know who your core customer is by name, you can describe him psychographically and demographically, you know, the three key things that they want.
From what you do for them, and you also know how you meet the needs of those three things. Now, the next step is about understanding the profitability for different customers. So I’ll ask the question. So, okay, how profitable are they? What’s the revenue from people like Bob? And what’s the profitability in percentage and in dollars?
So that if we have more than one core customer type and to begin with. We often do. We wanna get down to one, but we’ll often [00:12:00] start with two or three. Then we can make a call about where we actually want to focus now, and if one is more profitable, generates more dollar profit than the other or the third, then we are probably gonna turn the third off because it’s just not worth spending the effort
Milan: That was my question. So how often, because happens to me all the time, you run into a situation where people say, Hey but we have several core customers right? And they’ll start, they’ll start listing it, listing them, and do you know who knows what, right?
Ged: So we often have the view that we have more than one core customer. And I don’t push too hard on that to begin with because, you know, if they think they’ve got three core customers, okay, let’s work through the process.
It’s work through the process. And once they can see how they can. Earn more money by doing less work. By focusing on their core customer, it gradually sinks in. Now it might take a couple of months, it might take six months. But they normally get there and. [00:13:00] I do have some customers, some clients who genuinely have more than one core customer.
Now I’ve, I have a company, they, they, you know, they work in the scaffolding space and they sell scaffolding, but they also provide scaffolding services. And the people who buy from them for those two different services are actually quite different. So, you know, but they, they’re actually close enough because they’re in the same industry.
But so, so they are different and they’ve made it work for them.
Milan: You can argue that they are two different business models, which they are. And then you have a different core customer for a different business model, right? I think that that is important. The other piece that I run into quite often is the distinction between the customer and the user and then understanding the. Distribution chain, like who is really your customer? So for example, if you’re in the grocery business and you make chips, the ultimate customer is the consumer and you need to market [00:14:00] to them. But your customer, the person who makes the decisions to put you on shelves, the person who writes you the check is the distributor.
Ged: Yeah.
Milan: So who do you treat in the chain? Is, is and how, is really, really important. You need to understand who has what role in sort of your stakeholder map of you know, your overall offering. And that depends on the business model, of course.
Ged: Yeah. Yeah, yeah, yeah. And in, in that ex example, you know, it is the person who gives you money that is the core customer, and that’s the, that’s the criteria I use to actually redefine who the core customer is. Yes, you might have users, yes, you might have end customers, but it’s the person who gives you money.
That’s the costume.
Milan: It’s interesting in software space, for example, because very often there is somebody doing the implementation or the integration, some that, that represents your, or making the actual choice to recommend your product to [00:15:00] the, to the, to their customer, right? And understanding how your service is benefiting your customer’s customer really important in that space.
Ged: Yep. Have Milan, do you, do you have any stories of companies or clients who gossip it? You know, even if it took them a while, you know, and then they doubled down on their core customer to great effect. I mean, I, I certainly do. I’m sure you do too.
Milan: Yeah, well I saw a company double. Their revenue and triple their profit, but going from 20 customers to five. Right. Just literally saying, okay, now this is what we want. This is what we don’t want. This is what, this is what works. Let’s double out on that. Let’s find two more of those. Let’s get rid of the 17.
That don’t, don’t, they don’t fit that. And let’s really, let’s get really good at serving this [00:16:00] this group. And it works like magic. It’s ridiculous, right?
Ged: And I’ve seen particularly the customer service functions light up and get reenergized when you get rid of non-core customers. And when you get rid of non-core customers that cause all the hassle, and they’re the ones that complain, they’re the ones that suck up. Customer support or customer service time.
And once you’ve got rid of them, the whole function just lights up because they’re now just working with customers. They really, really wanna work on.
Milan: You’re using very strong language, and I am with you on that. Like getting rid of the non-core customers is what you’re trying to do. I think that there is also the element of how, right, because you need to worry about your reputation in the marketplace and all of those things. So very often it’s about. Farming them out, finding the right vendor for them, even if it’s your competition. Because if you are doing your strategy right, really don’t have a [00:17:00] competition, right? Because they’re going after different customers than you are by definition. So you can take the customers that are not yours that you don’t want to do and give them to somebody who can serve them better, right? Because that person. Working for this current company that might not be your core customer, purely from the point of view of which company they work for. And what is the value proposition the company requires? Might be your customer, core customer once they move on to a different job somewhere else.
Right. And maintaining a good relationship with the people because again, people do business with people, not with companies. Is the, is the key for the long term
Ged: Yeah.
Milan: Of whatever it’s, you’re.
Ged: Yeah. And most reasonable people will have a reasonable response to a reasonable conversation. So if you go to a non-core customer and say, well, look, you know, this actually isn’t working for us. We don’t make any money from you. Now you suck up [00:18:00] all of our customer service time,
Milan: You
Ged: So. Yep. You are not happy.
Yeah, you are complaining all the time. So this is probably the right time to break up. This is probably the right time to break up and as you said, Milan, maybe going to this company would be a better experience for you. So you know, no, no hard feelings, you know, enjoy working with a, a different company and yeah, good luck.
Good luck.
Milan: The company, which went from 20 to 17 cut a deal and effectively sold their book of business to company that was better suited to serve that type of customers All the bells and whistles, like they basically said, you know, rather than trying to save these customers, our effort is better. Invested into offboarding them as gracefully as possible to make sure that they’re happy because of the [00:19:00] the choice we made. Right? And they it, it actually all went from the from their change to core values, right? We had episode and core values, but that, that’s what it is. Like they are a service organization, professional services, and they’re like, you know, we want to be partners with our customers, and as a partner, we have to have their. Benefits or their, you know, happiness in mind is our priority and this is not the right situation for them. Let’s find them a better situation, even if it means that we are cutting ourselves out of the value chain.
Ged: So if you don’t know your core customer, I strongly advise that you do some work to get really, really super clear on who your core customer is. So who they are specifically as individuals and their characteristics and what they want from.
A service or a product that you provide and how you meet those needs and which ones are the most profitable. And once you are clear on that, you can then start to [00:20:00] clean up your client portfolio so that you end up working just with core customers. It cuts across a lot of the deeply held business beliefs around how you make money and how you get money.
But believe me when you get there, it changes how you do business. It changes the dynamics of how the functions work together within the business.
