The owner of a well-regarded flight school once told me how he’d grown his business from a shoestring operation to a thriving and profitable company in only six years. Bob, as we’ll call him, had much wisdom to share, but particularly interesting to me was the breakthrough he experienced the first time he “fired” a student.
Bob explained how, after opening his business, he had tried to accommodate the needs of every customer who came in the door. He and his wife had struggled with unacceptable margins in an effort to make flying affordable for all of their students. One day, after tackling a particularly trying cash flow problem, Bob was approached by a customer wanting to negotiate a few more dollars off of his already discounted flight training costs.
“You know,” Bob said to the customer, “I don’t think we’re the right flight school for you. I really think it’s time you visited the folks down the road. They’re less expensive than we are and could be just what you’re looking for.”
“But I like your flight school better,” the customer protested.
“I appreciate that,” Bob said, “but you clearly need a lower price than we can offer. Now is a good time to make the change.” Bob then thanked the customer for his business and ushered him out the door.
“I didn’t think much about what I was saying at the time,” Bob told me, “but later I realized it was a major breakthrough for us, because once I’d told one customer no, I suddenly found myself able to draw the line with others. We’d known all along what we needed to charge to make a profit, but on that day I came to grips with setting profitable rates and abandoning those unwilling to pay them. We finally recognized that we needed to pick and choose our customers, and turn away those not profitable for our business. It sounds harsh, but without a profit you can’t have a business, so this decision was good for everybody—us and our customers.”
Bob then showed me around his beautiful facility, bragging about customer service and the high maintenance standards he sets for his training airplanes. “None of this could happen,” he explained, “until we became selective about our customers.”
Talking with Bob reminded me of similar wisdom once shared with me by the businessman who owned the largest independent insurance agency in our town. In his file cabinets, each customer’s folder was emblazoned with a green, yellow, or red adhesive dot. “What do they mean?” I asked.
“Insurance is a business where you’re made or broken by the quality of your customers,” he said. “During our difficult early years, we learned that many customers demanded service way out of proportion to their accounts, and it was literally killing our business. We’d spend hours struggling to find a better deal for a $100-a-year customer, while ignoring large and really profitable accounts unless they called with a problem.
“We quickly realized that we had to find a way to trim losing customers so we could concentrate on building the winning ones, so we decided to rate our customers based on their profitability to our business.”
He then explained how his agency annually rates every customer, considering factors such as premium size, payment record, new coverage added over the year, number of claims, and service required. “Those who exceed a certain ratio get a green dot,” he told me. “They are our best customers and we treat them like gold. Customers rating poorly for more than one year running, we direct elsewhere. Of course we don’t want to leave anyone in the lurch, so we refer them to other agencies. But once the decision is made, they have to switch. Yellow dots are for marginal customers. Those earning yellow for two years running we code red, and then if that lasts for a year we let them go.”
Back to the business of flight training. Dropping customers may sound harsh. But here are two business owners among many who’ve learned how expensive it is to carry unprofitable customers. In a tough business like flight training, you can’t give your good customers what they deserve unless you earn a profit. That means targeting your good customers, focusing service to keep them happy, and letting those who don’t fill the bill go elsewhere. How many customers in your business deserve red dots? “Firing” customers may be painful, but it means more flight schools can flourish. Let’s hear it for a run on green dots
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