Specifically Which Customers Do I Fire?
Entrepreneurs, here is an important distinction in your customers that I learned at the Wizard Academy a few weeks back. As you sell your product or service, you will deal with two meta-customers in your business. One is ideal. The other is a time-suck. Respectively, they are called Relational and Transactional. It’s important to learn to spot the difference on sight because while the Transactional will make himself extremely visible and demand all sorts of customer service, he will only make up about 20% of your profits. The Relational shopper accounts for the other 80% and is where your long-term interests lie.
Be on the lookout for shoppers demanding a discount
[NOTE: This knowledge comes from the retail game, but the concept applies to technology entrepreneurship because the strategies people use when they shop at Best Buy will mirror the strategy they use when they shop for your product or service.]
Let’s say you’re selling your consulting services, and are faced with one Transactional shopper and one Relational customer. Notice that I am calling one a shopper and the other a customer.
The Relational customer views today’s sale as the first in a long series of transactions. By taking care of this person’s needs, he will grow to trust you and come back repeatedly. This is because his greatest fear is making the wrong choice (we’ll compare this to the Transactional fear in a moment), and therefore he is looking for someone with expertise in whom to place his trust. This is why the Relational customer is your best customer. He assumes you are the expert. Moreover, he wants to pay you to be the expert, so he doesn’t have to be. He’d rather pay you to have it off his mind. Once you establish your expertise (read: your monetary value), Relational customers become repeat customers.
This works because the Relational customer considers time spent comparing prices part of the purchase price. That means he’s not interested in getting the lowest price. He’s interested in not buying the wrong thing. He isn’t going to slam you with endless negotiations to lower your rate $10/month because that’s a waste of his time. He wants to trust you, and pay you what you’re worth. He’s got better things to do with his time than haggle (Sorry Ramit) for a slight discount.
Transactional shoppers, on the other hand, are thinking about this transaction only. We all get in Transactional mode from time to time, like comparing the prices of gasoline. That’s because we know that it’s all basically the same product. It makes our cars run, and so we’re willing to drive to the station across the street to save five cents a gallon, and we aren’t concerned with developing a relationship with Shell or Texaco. The Transactional shopper operates this way to buy everything from gas to bulk coffee to your consulting services. He loves shopping for the lowest price as much as LeBron James likes playing basketball. And he couldn’t care less about developing a relationship with you. Remember this distinguishing characteristic and don’t be afraid of “offending someone” and demanding your rates. The Transactional shopper wants to negotiate below your established rate so he can get a deal.
The biggest fear of the Transactional shopper is paying more than he absolutely has to. Therefore, he will spend his free time to investigate for months in advance. By the time the Transactional shopper gets to you, he has talked to five competing service providers and is trying to start a bidding war as if you are a car salesman. Don’t let him. Securing his business isn’t worth the discount. The Transactional shopper will remain noisy and troublesome, all the while paying you less money than you are worth. In terms of the 80/20 Rule, transactional shoppers make up about 80% of your stress, and about 20% of your revenue, because they rarely spend money until they’ve gotten a deal.
Meta-Lessons from this. Your ideal (Relational) customer doesn’t care about price nearly as much as he cares about buying the right thing. He knows that he needs your services; he knows that there are risks, and he wants to trust you to do a great job over the long term. He’s developing a relationship.
The Transactional shopper (less than ideal) is the person who responds only to SALE prices. He will hound you without remorse for a discount. A transactional shopper has the potential to take up more of your time only to pay you less money than you’re worth.
The Relational customer knows instinctively that a super low sale price is probably too good to be true. Since they are afraid of buying the wrong thing, an abnormally low price begs the question, “what’s wrong with this guy that he has to give his stuff away?”
This is good for you. It means that you can focus your energies, like Ramit keeps saying, on serving the right customers, and let the wrong customers fall by the wayside. Focusing on cultivating good relationships with clients means that you get to do the work that you’re good at, for an appropriate rate. Don’t worry about hanging onto the people who never seem to be satisfied. Just tell them one of your competitors is having a one-time sale that you can’t match. They’ll be out the door and take their unreasonable demands with them.
I hope this helps.
