Monday, March 2, 2015

Finding Good Software Customers
and Firing Bad Customers

New software developers try to get as many customers as possible. Over time, they realize that customer quality is more important than quantity. Here are some insights on how microISVs can find good software customers, and fire bad ones.

Selecting Good Customers

The late advertising giant David Ogilvy developed an aggressive plan to acquire customers for his advertising firm. Ogilvy wrote a chapter in his book "Ogilvy on Advertising" about how his advertising firm selected its clients. And much of Ogilvy's advice translates nicely into the software development industry.

In his own advertising agency, Ogilvy started by making a list of the clients that he wished to get. The list included such giants as General Foods, Lever Brothers, Bristol Myers, Campbell Soup Company, and Shell. Twenty-four years ago, when he wrote his book, Ogilvy's company had more than three billion US dollars in annual billings from these particular companies.

Does it make sense for software developers to create a list of target companies? Yes and no.

If you're selling a $25 Windows utility, then it makes no sense to target particular individuals or companies as potential customers. But if you're selling highly vertical or industry-specific software, or high-priced software, then selecting customers might be an effective strategy.

For example, if you're selling forensic software, include the US Department of Defense and the FBI on your list of potential clients. Similarly, if you're selling educational software, it might be a good idea to target specific large school systems and universities.

Creating a list of high-end customers will also focus your thinking more on selling multi-user and site licenses. And that's a good thing for  most independent software developers.

Even if they're not selecting specific companies in advance, microISVs need to develop a plan to focus on groups of individuals and institutions who would be likely targets of their marketing efforts. If you're selling, say, a Windows music-playing application, you should be targeting the general PC-owning universe. But you need to craft separate web pages for each of your smaller niche markets. You should have a sales page for children, a page for tweens, a page for teens, a page for young adults. You need a page for adult music lovers, and another page for seniors.

You need separate pages for each genre of music. And different pages for the different levels of technical sophistication in your target audiences. Teens might find a discussion of MP3 and WAV essential, while seniors might find such a discussion intimidating. These separate pages will help you get the search engine traffic that you need.

It's important to keep track of the important metrics for each of your target markets. You might find, for example, that seniors account for a small percentage of your sales, but a large percentage of your support emails and phone calls. With that information, you can find a way to reduce the support burden from seniors by simplifying your software's GUI, or by including easy-to-understand instructions for your software.

Firing bad customers

In addition to knowing which customers to hire, you also need to develop a plan for firing customers who are hurting your business. In his book "How to Become a Marketing Superstar - Unexpected Rules that Ring the Cash Register," Jeffrey J. Fox urges us to segment our target audience and learn the metrics that are important to making each segment profitable. That includes the size of each market, its rate of growth, the demographics of the people in each segment, the target customers' needs, customers' fundamental attitudes toward buying software like yours, and your competitors' positioning of their software in each segment.

Fox wants us to create four categories of customers, based on sophisticated/unsophisticated and okay/not-okay. Translated into the software development industry, Fox would tell us that

  • Sophisticated/okay software customers know what they want. They might be quite familiar with your competitors' products. While you might enjoy a high level of sales with these prospects, your sales margins will be low because competition will be intense.
  • Unsophisticated/okay customers look to you for advice and guidance. Fox says that they expect to pay for support, but Fox was not particularly writing about the software industry in which many prospects expect to get free support and even free software. Margins per order might be relatively high, but don't expect to get a huge number of orders.
  • Sophisticated/not-okay customers are to be avoided. Be prepared for a continual flow of email questions and complaints, both before and after the software sale.
  • Unsophisticated/not-okay sales are a real problem. In addition to eating up a lot of your time, they present potential concerns such as lack of appreciation for your software, lack of respect for your company, and lack of loyalty.

If you develop a segment-by-segment marketing plan, it should be fairly straightforward to determine which marketing techniques are generating good customers versus less good ones. Spend more time going after larger (multi-user and site license) customers. Your software pricing should reflect the sophistication of the customer, and the amount of hand-holding needed to support them. Many multi-user and site licenses will be purchased by companies with in-house technical support.

Some software developers - especially microISVs who have recently launched their businesses - tend to put up with all sorts of abuse, in the hope that they can generate some initial sales. Established software companies, by contrast, learn to fire customers who aren't okay. These problem clients can be a monetary and emotional drain, even on a one-person software development company.

You can and should put up with a lot of problems. Fox tells us that "good customers can be tough, exacting, impatient, challenging, finicky, exasperating, demanding, needy, insistent, and a million other things." Bad customers, however, drain too much time, energy, and emotional capital. Don't deal with them.

Ogilvy also talked about when we should fire customers. He said that he walked away from accounts five times as often as he had been fired by clients. The main reason that Ogilvy cited for firing customers is that they were difficult to deal with, and he didn't care for the way they damaged his staff's morale. There's a good lesson there for software developers who have clients who are maintenance nightmares.

One last bit of advice from David Ogilvy: Don't get clients by selling at the lowest price. Ogilvy said to his prospects, "If you are going to choose your (advertising) agency on the basis of price, you are looking through the wrong end of the telescope." He told those companies which he wanted to represent that they should be thinking about the increased sales that he can deliver, and not the amount of fees that he charges.

In the software industry, we should be taking the same approach with our customers. Make it clear how our products and services can help our customers save time, save money, and do things tomorrow that they couldn't do yesterday. Find the right customers, and keep them forever. Lose the bad customers.

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