Ask HN: How to handle customers that I lose money on? | Hacker News Reader

Ask HN: How to handle customers that I lose money on?

6 pointssmcguinness8 comments

I've got a SAAS product that is doing pretty well. I've been getting better at doing customer analysis and I've discovered that about 8% of my customers who pay a monthly fee for the service actually cost me more than what they pay. Is this just a "cost of business"? Do I attempt to contact them directly to tell them I need more money from them? Can I tell them to no longer use the service because they are costing me money?

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What's their lifetime value? Is it still negative?

At the very least, this might be a sign that you should change your pricing structure so that future customers don't end up in that same unprofitable category.

You might also just consider it a cost of doing business. I've heard that Backblaze tolerates a certain number of unprofitable customers because it gains overall from having a single flat unlimited-usage plan.

I think you'll find it hard to get them to pay much more for your service, especially if they've been paying customers for less than a year.

I'd advise seeing it as a learning opportunity, how much of a loss do you make on these users? Are there any ways you can cut costs to compensate?

Other wise, try raising the price for new customers to a point that if the old customers were paying that you'd make a profit. I bet you won't see a drop in revenue

Can't you just shoot them a polite e-mail.

Say you're bringing your pricing structure inline to be fair across the board.

Give them plenty of notice - say 3 months. Give them the opportunity to cancel if need be. Even go as far as to recommend another service they can migrate to.

At the end of the day your company would be more profitable without these users than with them. If you can turn them into a profitable customer - bonus!

This is the process that I am leaning towards. Changing my pricing means that it affects all users when all I want to "fix" is the few that impact my bottom line in a negative way. I think I've come up with a rolling average of "over use" which will then cause a polite email to be delivered to them indicating the issue and how we can remedy the situation.

Sounds reasonable! Also if these are the folks that are using your service the most, it might be good to hit them up for feedback.

That 8% may be your die-hard fans!

Try to apply the 80/20 rule to your customers and ruthlessly cut out all the customers that are costing you more (in terms of money and time) vs. the ones you enjoy having. You already did that with the 8% - tell them to leave, if they don't like the product/conditions/whatever, but tell them in a friendly way. I'd love to give you more advice, if you'd show me the product!

Why are they costing more money than they bring in? Is it support? Is it usage? Is it overhead?

We need more information before we can give you a straight answer. For example, if the reason they're costing you more than you make is because they're using some resource you offered them, and you cut them, you're going to have a social problem on your hands. On the other hand, if it's because you offer a service for like 15 minutes a month and they're leaving it on 24/7, you can probably get away with metering.

Tell us more.

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