Focusing on retaining and searching for existing and new customers is an essential part of business development. But what about removing customers? Does that make good business sense?
I would argue that yes, it does.
Divesting customers may seem counterintuitive at first glance. After all, the goal of any business is to acquire and retain as many customers as possible, right? Not exactly. In some cases, divesting certain customers can actually be a smart business move that can benefit a company in numerous ways. Below I discuss three reasons why divesting some customers is a good thing before giving some tips on how to work out who to divest and how to divest them.
Improving Profitability
One of the primary benefits of divesting certain customers is improved profitability. Not all customers are created equal, and some are more expensive to serve than others. For example, customers with high maintenance requirements, low lifetime value, or difficult payment histories can all consume significant resources, significantly eroding profitability.
By divesting these types of customers, a company can free up resources to focus on more profitable customers, increase efficiency, and boosting overall profitability.
Increasing Focus
Another benefit of divesting customers is that it can help a company to focus more closely on its core market. When a company has too many customers, its resources become spread thin, struggling to meet the needs of each individual customer. By divesting less profitable or less desirable customers, a company can focus on building stronger relationships with its core target market. Resulting in increased customer loyalty, and improved customer satisfaction.
Better Alignment with Company Goals
Finally, divesting less desirable customers helps a company to better align its business with its core goals and values. Not all customers are a good fit for a company, and retaining customers that are not aligned with a company’s values or goals can create conflicts, erode morale, and negatively impact company culture. By divesting these customers, a company can remain true to its core values and goals, while maintaining a positive, productive work environment.
How to Divest
By now I hope you should see the benefits of divesting part of your customer base. But how do you determine who should go?
Your first point of call should be your customer matrix. Ideally you will have set up a matrix benchmarking your customers against the attributes of your “Ideal Customer”. This visual representation of your customer base will highlight those closest to the ideal and those furthest away. Looking at the latter group really think about why you would want to continue working for them. If you cant think of a good reason: divest.
Cutting out customers can be good for business
Additionally, develop a list of three traits that make working with you and your business untenable. These could include:
- Never pay on time
- Expect you to drop everything for them
- Rude
- Always trying to push down price
Then divest.
This can be as simple as no longer tendering on projects for that particular customer. But if you have a long history with that particular client a short phone call explaining their behaviour and its impact on your decision to no longer work with them may be appropriate.
Final thoughts
Divesting certain customers can be a smart business move that improves profitability, increases focus, and better aligns a company with its core goals and values. Seemingly counterintuitive at first, divesting some customers can help a company to be more successful in the long run. It also allows the business developers to focus on those customers where you can add the most value and get the best returns.
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