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4x profit with better customer selection?

August 05, 2022

In today’s issue, I am sharing a customer selection framework that'll increase profit & make your business more fun.

Customer selection is an overlooked, but powerful positioning strategy.

Just last week I met an entrepreneur who increased his profit 397% by cutting bad customers and focusing on good ones.

But, I know a dozen entrepreneurs that are stuck in a hell of their own making. They’ve built themselves a shitty job serving people they don’t like.

But not you! You subscribe to the Build Your Business newsletter, so you’re not falling into the same trap.

Let’s dive in:

Focus on profit, not revenue.

Some entrepreneurs have a “growth at any cost” mindset & will say yes to any customer request.

In a service business, this leads to:

  • Low-value clients that make your life miserable

  • Inconsistent service & pricing since there is no standard offer

  • Underperforming staff

  • Low-to-no profit & burnout

Luckily all of this can be avoided if you’re clear on who you serve and how you serve them.

Here’s how to get clarity:

Step 1: Fire your worst clients

By getting rid of clients that drain you & make your business miserable, you free up time to focus on your best clients.

Here’s how to identify your worst clients:

  1. Take a piece of paper & draw a line down the center

  2. On one side list your 10 lowest paying clients

  3. On the other list your 10 most annoying clients

  4. Identify duplicates and circle them

Author Tim Ferriss ran a supplement business. He realized that 100% of his business headaches were coming from his worst customers:

“All, and I mean 100%, of my problems and complaints came from this unproductive majority, with the exception of two large customers who were simply world-class experts of the “here is the fire I started, now you put it out” approach to business. I put all of these unproductive customers on passive mode: If they ordered, great—let them fax in the order. If not, I would do absolutely no chasing: no phone calls, no e-mail, nothing. That left the two larger customers to deal with, who were professional ball breakers but contributed about 10% to the bottom line at the time.”

Step 2: Fire your worst clients

Or at an absolute minimum, get your worst clients in line. This means setting clear expectations about what you will & won’t tolerate from them.

When you do this it’ll feel like a massive weight has been lifted off of your shoulders.

Here are the results in Tim’s business after he dealt with all his problem clients:

Input:

  • Fired 2% of his customers

  • Stopped contacting 95%

  • Focused on the top 3%

Outcome:

  • 120 customers → 8 large customers

  • 80-hour work weeks → 15 work weeks

  • $30k in monthly revenue → $60k in monthly revenue

Another entrepreneur, Harris Kenny followed a similar framework in his e-mail prospecting agency, and here were his results:

Input:

  • Fired 38% of customers

  • Cut 75% of staff spend

Outcome:

  • Worked 50% fewer hours

  • Earned 387% more

Step 3: Find your best clients

Now that you've freed up time & mental energy, let’s invest in your best clients.

Here’s how to do it:

  1. Take a piece of paper & draw a line down the center

  2. On one side list your 10 highest paying clients

  3. On the other list your 10 favorite clients

  4. Identify duplicates and circle them

Step 4: Interview them

If you’re an in-person business, take them to coffee.

If you’re remote, send a Starbucks gift card & invite them to 30m Zoom call.

Treat the meeting like a friendly conversation, not a weird client interview.

Ask them 4 questions:

#1: What’s your favorite thing about my business?

You may think that you know why customers like your business, but after doing this exercise with 700 gym owners, I can say the results will surprise you.

You’ll learn:

  • What separates you from your competition

  • How to market in your customer’s language

#2 What frustrates you most about my industry in general?

It’s hard to get honest feedback in a face-to-face meeting. This is an indirect way for customers to tell you what they don’t like about your business.

You’ll learn:

  • About your competition (if the client has worked with them)

  • How to address pain points in your marketing

  • Tips to improve your business

#3 What’s your biggest challenge outside of [YOUR SERVICE]?

Learn what other problems you can solve for your clients. The more you know, the better experience you can provide.

This helps create new:

  • Service offerings

  • Partnerships

  • Referral programs

#4 Do you know anyone who could benefit from what we’re doing?

Your best customers hang out with similar people. A referral from a great client is 10x more valuable than one from a bad client.

Just ask.

Use the information from your interviews to:

  • Get clarity on who you DON’T serve

  • Target your ideal customers

  • Update your marketing & messaging

TLDR:

  1. Fire your worst clients

  2. Find your best clients

  3. Identify commonalities

  4. Sell more clients like them

Until next week,

John