Thinking Entrepreneur

An owner’s dispatches from the front lines.

I have been reading Paul Downs’s recent posts about his Very Picky Customer with great interest. I think Paul handled the situation well, and I wouldn’t be surprised if the woman he wrote about ended up becoming a valued customer of his. While I can certainly identify with the trials and tribulations of dealing with picky customers, I was surprised by the many comments from business owners who concluded that this woman was too much trouble.

When I started my business, it seemed obvious to me that the key to success was finding new customers. I’ve since learned that I was only partly right. The key to really big success over the long run is maintaining the highest level of repeat business possible. The key word here is possible. The fact is, there is a point of no return with some customers, some of whom you really can’t do business with. That said, I have concluded that the key reason my business has grown over the years is that I grew up working in my father’s and grandfather’s dime store, and I learned customer service before it was called customer service. It was just doing business.

I never saw them fight with a customer. It was pretty simple. Like most immigrants, my grandparents came to this country with nothing. For them, it was an easy calculation: no sale, no eat. You might call that motivation. My father learned from my grandfather. I learned from my father.

Here’s some simple math: Let’s say that you take over a family business that is doing a million dollars a year. You have kept track of the amount of business that comes from repeat customers and the amount of business from new customers. Your figures show that 80 percent of your business comes from existing customers, which is pretty good considering that some people move, die or stop needing your product or service. Of course, this also includes customers who stop doing business with you and go to a competitor.

Let’s also say that you generate enough business from new customers to result in growth of about 4 percent a year. In 20 years, your $1 million company will be doing $2.2 million, and in 30 years it will be doing $3.2 million. You are successful. You have grown and guided the company through another generation, which is more than most family businesses can say.

But what if you had been able to get more of your old customers to continue doing business with you? What if this had resulted in yearly growth of 8 percent? The math is simple, but the impact is huge. In 20 years, your business would be doing $4.7 million, instead of $2.2 million. In 30 years, it would be doing $10 million, instead of $3.2 million. It would be a very different business. Instead of doing well, you might be quite wealthy. Maybe that’s not your goal, but earning more money also provides opportunities to help other people (if that’s your goal). In any case, to be wealthy or not to be wealthy is not the question. The question is, could your business grow at 8 percent instead of 4 percent?

It’s easier said than done. I believe there are two factors: one is raising your standards for quality and service to provide a better experience. Sometimes this means losing money on a sale, with the understanding that you will make it up in the long run. Losing a customer is usually far more expensive than losing money on a sale. The second factor is more insidious: dealing with customers you make money on but who are demanding and difficult. I call these customers the critical 5 percent. Anybody can take care of and make happy the easy 95 percent, but it takes understanding, patience and exacting standards to take care of the critical 5 percent.

Instead of learning to satisfy these customers, a lot of business owners say things like, “I don’t need customers like that!” “No one is going to talk to me like that!” “He’ll never be happy!” And my favorite, “She’s crazy!” Crazy customers have sane friends. And the fact is, few customers really are crazy. Some are having a bad day, some are difficult, some want what they want, some are jerks. Does this make them crazy? Granted, again, there certainly are customers who are not worth dealing with, but they are a small percentage if you have a thick skin and the desire to build a big business.

Business owners can make their own choices. If they want to do business only with nice, easy customers, that is their prerogative. On the other hand, if their goal is to make their businesses as large as possible, they should understand that most customers are valuable and shouldn’t be squandered. I would start with telling my staff to stop with the customer-is-crazy routine. It is destructive and makes for an easy excuse to not step up and take care of a problem. The numbers speak for themselves. Being a little bit better can have a huge impact over the long run. It might even assure that there will be a long run.

Jay Goltz owns five small businesses in Chicago.

Article source: http://feeds.nytimes.com/click.phdo?i=4c3f5f5ed83d07feb6c14f8a250d11b6