Five undesirable customer types

When you run a business it can be easy to chase all potential customers and believe that each one is the right customer in Perth for your business.  However, not all customers are created equal, and if you have too many undesirable customers it will drain your business resources and you will find yourself in trouble.

Some customers are loyal, while others will stray if they’re offered a lower price elsewhere.  Some customers are demanding, while others only call when they wish to place an order.  Every business must deal with a variety of customers, but there are certain types who do more harm than good to your business.  Here are five undesirable customer types that you should learn to recognize and avoid if you want your business to thrive.

1. The customer who returns most of their purchases.

Return policies are intended to offer customers a reasonable period of time in which to reconsider their purchase decision.  However, some customers abuse such policies.  Some buy a product with the intention of using it only once or twice and then returning it.  Others buy two similar items with the intention of comparing them, keeping only one, and returning the other.  Such behaviour increases staffing costs and warehousing expenses, and it can strain your relationship with suppliers.

2. The customer who makes unreasonable demands of your service staff.

If every little problem that the customer encounters with a product leads to a call to your customer service department, the resulting personnel costs may ultimately exceed the revenue resulting from the original purchase.  Customers who behave this way (instead of consulting the product manual/frequently asked questions) also reduce the standard of service available to other customers by monopolising customer service staff.

3. The customer who complains publicly about your company’s products or services.

The growing visibility and influence of social media has made this type of customer more dangerous than ever.  This is especially true if your business is a large and well known company.  Social media sites like YouTube and Twitter give dissatisfied customers the means to broadcast their complaints to a very large audience.

4. The customer who unreasonably takes advantage of special offers or incentive deals.

If a customer repeatedly signs up for a service to take advantage of a low price introductory offer and then cancels when the introductory period ends, they are not helping your business succeed.  Such behaviour may be perfectly legal, but it is nevertheless outside the boundaries of fair play.

5. The customer who manipulates to gain an advantage.

This is the customer who constantly takes advantage of free delivery by placing numerous small orders (to reduce their inventory costs), makes demands or frequently threatens to take their business elsewhere if they don’t get special deals.  At a certain point it is necessary to acknowledge that such customers are more trouble than they’re worth.

After you identify the undesirable customers, the next stage is to develop an appropriate response.  Where possible, try to educate them in a respectful and courteous manner about reasonable and acceptable practices.  If this fails, you may have to consider ditching them.

Ridding your business of undesirable customers has multiple positive effects.  In addition to improving the bottom line, it improves employee morale and allows you to focus more on finding the right customer in Perth.

The benefits of a customer loyalty program in Perth

In today’s competitive environment all businesses are looking for ways they can not only attract customers, but also retain the customer base they have.  It is far easier and cheaper to sell to customers you already have than it is to attract new ones, and customers are always being approached by competitors with offers to lure them away from you.  So how can you improve your customer loyalty?  Why not consider a customer loyalty program for your customers?

A customer loyalty program is surprisingly simple to implement, especially online, and can bring many benefits to your business and your customers.  Here are five ways your business can profit from starting a loyalty scheme.

Customer retention

The most obvious benefit of a customer loyalty program is that it improves customer retention.  Customers will want to accumulate points to enjoy the rewards or benefits on offer, and will stay rather than be tempted by a competitor.

As retention improves, so does the long term value of your customers. This takes into account the value of a customer from the first time they purchased from you instead of focusing on their current worth.  By retaining customers, your business can generate maximum revenue over a longer period and optimise your return on marketing investments.

Customer data

A customer loyalty program allows you to collect additional data about your target audience.  Most individuals are willing to share a little extra information in return for loyalty rewards, and you can use this to improve your understanding of your customer base.

The extra information helps group your customers into different categories so as to better target them with marketing campaigns.  Your customer loyalty program thus turns full circle:  your customers give you information in return for rewards, and you give them what they want with better marketing and the products they love which, in turn, improves customer retention!

Business planning

Once you have implemented a customer loyalty program and gathered extra data about your customers, you can use this information to better plan your business strategies.  Whether the information is in terms of money spent, demographics or buying behaviours, it will help you plan your business decisions based on solid data instead of guesswork.

For example, suppose you are thinking of starting a new product line.  Your market research will provide details of your target demographic by age, gender, location, income and other factors.  Comparing this information with that gathered from your loyalty program will show you whether you are on target or need to reconsider .

Increased customer purchases

Generally, customer loyalty programs encourage customers to spend more to earn more points.  You can extend this by running limited time promotions, offering extra points on specific products (usually the ones you want to clear from stock) or services, or even creating ‘treasure hunts’ for promotional codes hidden throughout your website.  The possibilities are only limited by your imagination and your website developer’s ability!

Combining your customer loyalty program with marketing campaigns can also generate extra purchases.  For example, you could run a simple ad that offers extra loyalty points for signing up and bonus points for spending more than a given amount on their first visit (subject to certain terms and conditions).

Competitive advantage

In a competitive global market, you need to make the most of every possible advantage to beat the competition.  Having a customer loyalty program hands you just such an advantage.  To put it simply, the more creative you are with your loyalty program, the further ahead of your competition you will be.

These are just a few of the benefits a loyalty program can offer your business.  Remember to make sure the program is attractive to your target audience so that, once it is up and running, it will gain momentum with every new registration and every promotion you run.

So put your thinking cap on and see what sort of customer loyalty program in Perth would work for you.

Four Simple ways to improve your customer service

When you identify the customers you want to attract, gain an understanding of what drives them and what they want from your business.  This will make it easier to look at ways you can assist them and provide excellent customer service.  This is often overlooked, yet it remains one of the most important aspects regardless of the type of business you are in.

Customers who receive individual attention when they have a problem are more likely to return and they are also more likely to tell their friends and family about you.  This is also an excellent way to set your business apart from that of your competitors, especially when you operate in a field where the product you offer doesn’t differ from theirs.  People are always happy to pay a bit more when they receive top quality service, so make sure you harness the power of customer service to drive your business success.

If your company’s customer service isn’t as good as your customers expect it to be, why not improve it?  The following 4 tips are designed to help you do just that.

Hire friendly people

Good customer service requires a good attitude and hiring friendly people is the best way to ensure that customers return to your business.  Of course, good employees are more than friendly; they’re patient and helpful even with the most difficult customers.  If this already describes your employees, then the next two tips will help you take your customer service to the next level.

Empower your employees

No matter how friendly your employees are, they can’t improve your customer service if they lack the authority to help customers.  Nobody wants to have to come back later in the week to speak to a manager.  Empowering your employees to make decisions on the spot will keep your customers happy and you won’t run the risk of losing them.

Ask for feedback

Some customers never complain, but that doesn’t mean they don’t have concerns.  To learn about customers’ likes and dislikes, smart businesses use surveys.  If your customers seem uninterested in participating, try offering them an incentive as a reward.  Whether on paper or online, surveys can take a lot of the guesswork out of customer service.

Going the extra mile

Customer service can never be too good.  Even if your customers say they like the way you do business, there’s always room for improvement.  Try to put yourself in your customers’ shoes and think through every element of their dealings with you and possible ways of improving things.

For example, say you’re at a restaurant waiting to be seated and the queue is long.  You want to leave but the kids are desperate to stay so you wait.  Eventually the kids become fidgety, moaning about how hungry they are.  A waitress comes along with a tray of hot cheesy bread and offers it to everyone waiting.  It doesn’t cost the restaurant much, it keeps everyone happy while they wait, you have an enjoyable time and tell your family and friends all about it.  To sum up, a potentially negative experience is avoided by good customer service.

Consider how you can offer something similar to your customers – for example, complimentary refreshments and a comfortable place to sit.  Do your customers visit your business with children?  If so, you could provide activities to occupy them while the adults talk.

Don’t underestimate the power of good customer service – it can make or break your business, so take a few minutes to think about how you can make dealing with your customers a more enjoyable and easier process.

One of the key ingredients to any successful business is identifying the right customer for your product or service and understanding them.  This way, you can deliver a great product or service that suits their needs.  This allows you to charge a higher price and also select the best form of marketing and advertising as you are aiming at only a specific segment of the market.

If you choose the wrong type of customer for your business you will struggle to sell your product or service to them and your business will suffer as a result.  So, in this case, the customer is not always right.  Don’t just sell to anyone; not all customers will be right for your product or service, so identify the right customer for you and your business profits will soar.

How do you start to identify who your customers are?

One of the most practical ways of defining your customers is by building profiles that represent the typical types of customers that you are aiming for.  As a result, you’ll be able to home in on a more specific target audience, communicate with them in a more relevant and personalised manner and, ultimately, generate more revenue.

Every business caters to a specific demographic and while some audiences might be extremely broad, it is still essential from a marketing perspective that you know your customers and how to reach out to them.  You’ll need to understand your own product or service, seek feedback, learn about your customers’ habits and interests and maintain a consistent and targeted marketing campaign.

Know your brand

There’s no shortage of novice Internet entrepreneurs out there who are attracted by empty promises of making a quick profit by selling a product or service that is in high demand, even if they aren’t at all familiar with what they’re selling.  The reality of a successful online business venture is quite a different thing.  You need to be completely familiar with what you are trying to sell and you need to believe in it.

Whether you’re a lone entrepreneur or you’re planning to start a small business with multiple employees or partners, you’ll need to define your mission and fully understand your products and services.  You simply cannot hope to accurately profile your customers if you do not have the utmost familiarity with what you are trying to sell to them.  You’ll need to pay attention to every detail before putting yourself in the shoes of your customers.  When you know your brand and have a clearly defined mission, you’ll be ready to start profiling your customers and tweaking your approach to marketing as necessary.

Seek feedback

This is a critical ongoing process, but you should start by doing plenty of research before you can even hope to get your marketing strategy off the ground.  Your business will inevitably need to adapt over time to the needs and desires of your customers, because these days they have far more control than ever before through things like social media and online reviews.

Seek feedback from your customers at every opportunity, but don’t become intrusive; don’t bombard them with too much information or too many questions.  Many simply won’t have the time or the patience to provide feedback, so you’ll have to accept that.  Fortunately, there are some effective ways of encouraging your customers to provide feedback such as by offering incentives like promotional codes and other discounts for completing a short survey or answering a few questions about their own preferences and habits.

Feedback doesn’t always need to come from the customers themselves.  You can gain invaluable insights, albeit not quite as accurate, by reviewing reports on your industry.  There are many companies, such as eMarketer and Forrester, which provide insights into specific markets by analysing trends in online behaviour which will help your business better define its target audience.

Create your customer personas

Create an imaginary profile of your perfect customer.  If your business has a particularly broad reach, then you’ll want to segment your target audience and create personas for each customer category.  Map out the behaviours and interests of your customers based on important factors such as demographics, buying habits, geographical locations and more.  You can even name these customers, as it may help you to imagine them in a more practical light.

When defining your customer profiles, be sure to seek answers to the following questions:

• What other related businesses would they choose to work with?
• What sort of subject matter is most likely to interest them?
• What are their demographical attributes?
• Where are they located?
• What do they need or want?
• What do they do to entertain themselves?
• What is their income level?
• How much would they be willing to spend?
• What are their priorities and goals in life?
• How do they approach change?
• What are their past purchases?
• How often have they purchased from you?

Every day, millions of people use Google to find answers to their questions, solutions to their problems or to simply find something to entertain them.  What types of queries can your business offer solutions for?  By knowing your customers’ problems, curiosities and interests, you’ll be able to tailor your content, your marketing strategy and your product to better suit the criteria.

Avoid basing your customer personas on a real customer, since no single individual can completely represent your target audience.  Instead, a customer persona should be reasonably broad and it should characterise your perfect customer.

Conclusion

With your customer profiles in place, you’ll be able to match each area of your marketing strategy to the individual characteristics of your customers.  By targeting smaller and more specific audiences, you should be able to increase the percentage of paying customers and valuable leads instead of wasting time and money on targeting the wrong people.  Ultimately, don’t forget that it’s not about getting more visitors to your website; it’s about getting more visitors who become paying customers.

A great way to assess the financial health of your business is to use some simple ratios to look at your business performance over the last few years.  This will allow you to see how your business has been tracking.  To get additional value you then need to compare your results with the industry standards; this will highlight whether your business is performing as well as it should or if there is room for improvement.

There are different types of performance ratios depending on what aspect of your business you want to look at.  These include:

1. Profit Ratios – these show the profitability of your business
2. Liquidity Ratios – these assess the ability of your business to pay its debts
3. Financial Ratios – these assess the funding position of your business
4. Efficiency Ratios – these look at the efficiency of your business processes

By monitoring these you can get a good overview of how your business is performing.

Profit Ratios

1.   Gross profit margin

This shows the proportion of profit for each sales dollar before expenses have been paid.  An acceptable margin varies from industry to industry, but in general the higher the margin the better.

Gross profit margin = Gross Profit / Sales : 1.0

2.   Net profit margin

This shows the proportion of profit for each sales dollar after expenses have been paid.  An acceptable margin varies from industry to industry, but generally the higher the margin the better.

Net profit margin = Net Profit / Sales : 1.0

3.   Gross profit vs net profit

The difference between the two can easily be seen on your profit and loss statement.  Your gross profit is your sales minus your cost of goods sold, but does not factor in your business operating expenses.  Net profit is a truer indication of your profit, as it factors in both your cost of goods sold and your operating expenses.

4.   Return on investment (ROI)

The ROI shows how efficient your business is at generating profit from the original investment (equity) provided by the owners/shareholders.  Lenders will also be interested in your ROI to help them determine the financial strength of your business.

ROI = Net Profit / Owner’s Equity

Liquidity Ratios

1.   Current ratio or working capital ratio

This calculates your business’ liquidity — i.e. how quickly your business can convert assets into cash for the purpose of paying your current bills/liabilities. This ratio is a good measure of the financial strength of your business.  For example, a ratio of 1:1 means you have no working capital left after paying bills. So generally, the higher the ratio the better off your business will be.  Lenders will also be interested in your current ratio to help them determine your capacity to repay a potential loan.

Current ratio = Current assets/ Current liabilities : 1.0

2.   Quick ratio

This “acid test” ratio is similar to the current ratio described above, except that it excludes inventory, which can sometimes be slow moving.  This ratio provides a much more conservative measure of the liquidity of a business.  For example, a ratio of 1:1 means you have no working capital left after paying bills.  So generally, the higher the ratio the better off your business will be.  Lenders will also be interested in your quick ratio to help them determine your capacity to repay a potential loan.

Quick ratio = (Current assets – Inventory) / Current liabilities : 1.0

Efficiency Ratios

1.   Debt to equity

This shows you what type of financing your business is more reliant on – debt or equity (private investment).  A ratio of 1:1 means you have an equal proportion of both debt and equity.  In general you want a mid to low level ratio.  The higher the ratio, the higher risk your business is to lenders.

Debt to equity ratio = Total liabilities / Total equity : 1.0

2.   Loan to Value (LVR)

If you are considering taking out a loan to buy property or an asset, the LVR is the loan amount shown as a percentage of the market value of the property or asset.  The ratio helps a lender work out if the loan amount can be recouped in the event a loan goes into default.  The percentage lenders are willing to accept will vary, but the lower the LVR, the better.

LVR = (Loan amount / Property or asset value) * 100

If you would like us to assess your business performance and identify opportunities for you to improve it, then call us today on 08 9204 3733 and arrange an obligation free review.