As business owners, we often celebrate never losing a customer as a badge of honour. But what if I told you that a healthy amount of customer churn is actually essential for business growth?
The Loyalty Myth
I recently sat down with a business owner who proudly claimed, “We’ve never lost a customer.” Initially, this sounds impressive, a testament to exceptional service and client satisfaction!
But as our conversation progressed, a different picture emerged.
“Do you enjoy working with all of your customers?” I asked.
“Well, we have a few that are quite difficult,” they replied hesitantly.
“Do those customers take up a lot of your time?”
“Oh, yeah, they’re the worst. The team can’t stand them. They’re always asking for free services or discounts, and nothing is ever good enough.”
“Now, do you regularly increase prices for these customers?”
“No,” they admitted. “They push back on everything. To be honest, I just can’t face the argument.”
By the end of our discussion, we’d uncovered an uncomfortable truth, this business was holding onto customers who:
- Were difficult to work with
- Didn’t appreciate their services
- Drained profitability (through resistance to price increases)
- Tied up disproportionate team time
- Damaged overall team morale
The Value of Some Customer Churn
Unless you’re extraordinarily lucky, you’ll never have 100% of customers who are a perfect fit. Customer relationships naturally evolve, their needs change, your business grows, key contacts move on.
This is why having a structured approach to evaluating customer relationships is crucial. Some customer departures should be celebrated, not cried over.
From Subjective to Objective Analysis
The challenge most businesses face is the subjective nature of customer assessment. Different departments often have conflicting perspectives:
- Sales sees the relationship one way
- Service delivery another
- Finance yet another
What’s needed is an objective framework, one that transforms gut feelings into strategic decisions.
Customer Scoring: The Objective Alternative to “You’re Fired!”
Instead of dramatic confrontations, customer scoring provides a structured approach to relationship management. This system works in two crucial ways:
Pre-Engagement Scoring
Before working with new clients, establish clear criteria to assess whether they align with your:
- Company culture
- Work style
- Service offerings
- Budget expectations
- Communication preferences
This predictive tool can help you avoid problematic relationships before they begin.
Post-Engagement Scoring
Once relationships are established, use an ongoing scoring mechanism to track performance. Evaluate factors like:
- Profitability
- Client success and ROI from your services
- Payment timeliness
- Resource demands vs. revenue generated
- Cultural alignment
- Growth potential
- Ease of working together
Case Study: Turning Customer Attrition into Opportunity
A global logistics client approached me with a serious problem—they were losing 35% of customers annually, significantly higher than the industry average of 20%.
They initially believed the problem was in their customer service team. But when I examined the entire customer lifecycle, I discovered something different.
They were primarily targeting American companies looking to expand into Europe. They had a super attractive offering and no shortage of customer willing to sign up. However, there were too many clients leaving them after just 6 months.
The problem was, many of the customers liked the idea of expanding into Europe but were not actually ready to do it.
By developing a customer scoring system that rated prospects on factors like:
- Product fit for European markets
- Prior third-party logistics experience
- Language capabilities
- Understanding of UK/EU regulations
- Marketing plans for European customers
…they could predict which clients would succeed and which would likely terminate services within six months.
Rather than rejecting those low scoring clients outright, this scoring system enabled the company to develop a new service line, helping businesses prepare for successful European expansion. The result? Dramatically reduced attrition, improved customer satisfaction, and increased profitability.
Creating Your Own Customer Scoring System
Developing an effective scoring framework isn’t complicated, but it requires thoughtful consideration of what truly matters in your business relationships:
- Identify 5-8 key factors that define an ideal customer relationship
- Create a 1-5 scale for each factor
- Include criteria reflecting both sides of the relationship value exchange
- Score all existing clients quarterly
- Set threshold scores that trigger specific actions
- Apply the same criteria to prospective clients
Handling Low-Scoring Customers
When you identify customers with problematic scores, you have several options:
Improve the relationship: Sometimes a frank conversation about expectations can transform things.
Adjust your pricing: If a customer constantly pushes back on value, increasing prices can either lead to their departure (freeing resources for better-fit clients) or cause them to suddenly value your services more highly.
Facilitate transition: Help them find another provider that’s a better fit while maintaining goodwill.
Create a different service model: Develop a streamlined offering that better suits their needs while requiring fewer resources.
The Freedom of Strategic Customer Selection
Remember this crucial business truth: not all revenue is good revenue.
The most successful businesses understand that customer selection is as important as customer acquisition. By implementing an objective scoring system, you transform what’s often an emotional, subjective process into a strategic one that benefits your business and team.
After all, a customer who isn’t right for you probably isn’t getting the best service either. Sometimes, the kindest thing you can do is help them find a better match for their needs.
Your team’s morale, your profitability, and even those customers themselves will ultimately thank you for making this difficult but necessary decision.
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