Saas Optimization: Ditch Unfit Customers for Better Business Performance

By Omid Razavi

Are you holding on to every customer at any cost? As SaaS leaders, it's time to question the notion of the "Customer for Life" and evaluate which customers to keep and which to let go. Retaining unfit customers who drain resources and cause pain for your team will ultimately hurt your business. It's time to be realistic and make decisions that will benefit your growth and efficiency in the long run.

Reasons to Rethink Customer Relationships

Several factors are driving a need for SaaS leaders to reassess their customer retention strategies:

1. The need for sustainable and efficient growth in the current business climate

2. Rising expectations from Customer Success and Support leaders to drive revenue and provide value, not just act as a cost center

3. Technology advancements allow organizations to evaluate each customer's present and future value, cost, and impact.

Unfit Customers: Who They Are and Their Impact

1. These types of customers may harm your business:

2. Unprofitable customers who do not generate enough revenue to cover their cost of service and are unlikely to do so in the future.

3. Disruptive customers who cause significant problems for your business, such as excessive support demands or abusive behavior.

4. Non-compliant customers who do not follow company policies and procedures, potentially causing legal or regulatory issues.

5. Unsustainable customers who have a temporary need for your product or service but are unlikely to remain long-term customers.

6. Non-strategic customers who are not aligned with your company's business strategy or target market due to changes in the customer or company.

A SaaS company risks becoming less competitive in the market by retaining unfit customers. The company will waste resources on customers who do not generate a return on investment instead of focusing on profitable and promising customers or finding new customers who align better with its target market. Unfit customers may also lead to dissatisfaction and negative reviews, harming the company's reputation and growth prospects.

Balancing Short-term Revenue and Long-term Growth

Ending relationships with unfit customers is a complex decision that requires balancing short-term revenue and long-term growth and considering the impact on customer experience and the company's reputation. Implementing a customer segmentation strategy, identifying key metrics for customer profitability, and regularly evaluating customer relationships can help make these decisions.

Risks of Retaining Unfit Customers

Retaining unfit customers comes with several risks, including:

1. Opportunity cost: Missed opportunities with better-fit customers due to time and resources spent on unfit customers.

2. Employee morale: Decreased employee morale, performance, and retention caused by frustration with difficult customers.

3. Reputation and credibility: Damaged reputation and credibility due to negative experiences with poor-fit customers.

4. Financial cost: Increased costs and compromised profitability in the long run due to the need for more resources and attention for unfit customers.

5. Limited resources: Negative impact on overall performance and growth due to disproportionate allocation of resources to unfit customers.

6. Loss of good customers: Good customers leave due to bad experiences caused by poor-fit customers.

Collaborative Approach to Managing Unfit Customers

Managing unfit customers requires collaboration and input from multiple departments, including Customer Support and Customer Success, as well as Product, Sales, Marketing, and Finance:

• Customer Support can identify patterns and costs related to tickets,

• Customer Success is closely tied to the use case adoption and value,

• Product can provide insight into usage patterns and value,

• Sales on re-selling potential,

• Marketing on brand and reputation impact, and

• Finance on financial costs and benefits.

A comprehensive approach involving all teams can lead to a plan for ending relationships with unfit customers while maximizing the value of healthy relationships.

The Role of AI

Artificial Intelligence (AI) can help SaaS leaders proactively manage customer relationships by:

1. Improving customer understanding: Analyze customer behavior, sentiment, and interactions using vast amounts of data to determine customer fit for products and services. (see VoC 2.0)

2. Detecting disruptive customers: Identify customers who are causing disruptions or being abusive to front-line employees, which can be an early sign of a poor fit.

3. Suggesting next best actions: Provide recommendations for improving customer relationships, guiding SaaS leaders towards effective solutions.

Why Transparent Communication Matters

Clear communication with customers who may not be the right fit for your company is crucial for the following reasons:

1. Professionalism: Avoiding a customer (ghosting) can harm your company's image, whereas open communication helps maintain a good one. Customers are more likely to recommend a business that communicates effectively.

2. Future opportunities: Transparent communication allows you to discuss alternative options with the customer, such as different use cases, increased spending, or involving different people.

3. Trust: Honest and transparent communication can build trust. Customers appreciate being informed about any changes or issues that impact them. It also helps avoid misunderstandings and reduces the risk of conflicts.

In summary, transparent communication, especially with customers who are not a good fit, is essential for maintaining professionalism, keeping future business opportunities, building trust, and preventing confusion.

Please share your thoughts on handling unfit customers and your approach to customer retention and business performance optimization in the comments below. Also, sign up for the CCO Perspectives weekly newsletter for more insights.