Keep Your Customers by Avoiding Toxic Revenue

A couple months ago I was managing an event for a nonprofit I work with. Prior to the event our speaker indicated he did not need a screen or projector for his presentation. Then, at the event, (an hour or so before his presentation) he changed his mind and asked for a projector and screen.

I understand last minute changes can be a hassle. And the hotel we held the event at has fantastic catering staff who handle these situations like they’re no big deal. And that’s how it should be. That’s a big part of their job.

But the hotel management sees these situations as golden opportunities to make money. So instead of charging us the regular fee (which I believe was under $100) their “11th hour special” price was $450.

This is TOXIC REVENUE.And if you’ve ever planned an event, you’ve probably dealt with this. It’s an industry norm. It’s like a bank charging you $35 because you’re 1 day late on your credit card payment. They do this for two reasons:

1. Because they can – it’s legal and it’s within their policies.
2. It’s an easy way to generate revenue. And it’s fluffy rich revenue with very little cost associated with it. (Or so it might seem.)

So it SEEMS like a good deal to the hotel (or bank or whatever company does this.) No doubt, their number crunchers are thrilled with this type of revenue.

But it’s a bad deal. Here’s why:

It will drive customers away. You don’t need a Ph.D in psychology to see why either. Just ask yourself, “how much do you enjoy being ripped off?”

Because that’s exactly how it feels. When you pay something and you get nothing of value for it, you feel ripped off. The extra $350 we paid for the projector and screen was ridiculous. It cost the hotel nothing extra to set it up at the event compared to setting it up earlier. And we got nothing else for it. We got exactly the same value and benefit as we would have for $100 if we had requested it earlier.

Just because you can legally take money from a customer does not mean you should do it. Anytime you take money from a customer and you offer nothing of value in return, you risk driving them away. And remember, the “value in return” is in their eyes, not yours. If your customer feels ripped off, they will not feel compelled to continue to do business with you.

Ask yourself, how important is the extra revenue today compared to the lifetime value of that customer? Then add to it the damage to your reputation from all the bad word of mouth advertising that customer will create. Is it really worth the extra few dollars? Probably not.

On the other hand, if you find yourself in a situation where you have the ability to take money from a customer in this way, what if you chose not to? What if the customer expected it (because it’s the norm in your industry) and you told them “no, that’s not how we do business. We value you as a customer and we’re not going to abuse our relationship with you.”

This gives you a huge opportunity to show your customers why they should continue doing business with you. Rather than generate some short term, toxic revenue, you generate a boat load of goodwill and you increase customer loyalty.

The article was written by Kevin Stirtz