A few months ago, we discussed improving the product mix to boost profitability on a per sale basis. You can perform the same analysis related to your customers to boost the lifetime value of each of your customers. A small minority of your customers may be providing most of your profit.
Many small businesses fail to adjust their target customer even as they scale and their business model changes. They don’t adjust their marketing, sales process and customer acceptance criteria.
Other businesses adjust their target customer as they grow, but retain legacy customers that don’t fit the new business model.
Negative Impact to Business Cash Flow:
Failure to adjust your target customer wastes time and money as you and your sales team chase customers that are no longer the right fit. The new customers you do close are unprofitable.
The legacy customers you continue to work with often pay lower historical fees, only purchase low margin products/services and cost more for you to service.
Actions You Can Take Right Now:
1. Review your current target customer including size, industry and service needs. Do you need to adjust the target customer based on your company’s new capabilities and strengths?
2. Review your current customer list. Split your customers based on revenue and profitability into categories: stars, average and needs attention.
a. Review each customer in “needs attention” category. Could they be interested in changes to scope or pricing that would move them to the average category? Is the situation unsolvable and the customer relationship needs to be terminated?
b. Review the average category. Have there been changes to the client’s business that would require additional assistance from you? When is the last time you talked to each customer in this category about other ways you can add value to their business?
3. Ensure your sales team understands how your target customer has evolved. Teach them how to identify the target customer and incentivize them to prioritize the pursuit of those customers.
4. Don’t be nervous about losing some unprofitable customers. You will have more capacity available to serve the remaining customers better. These customers will likely want to buy more from you and refer more business to you as you step up your customer service.
Coming up: Customer Segmentation and pricing
Wishing you continued success and growth this month!