Is It Time to Fire Some of Your Customers?

The customer is always right. Correct? Wrong!

The RIGHT customer is always right for your business. Unfortunately most of us don't know who the right customers are for our business. So we take on board anyone who has a heart beat, without ever identifying the right customer profile for our business.

But who is the right customer for your business and how do you identify the ones to avoid, or actively send elsewhere? Master this and you will build a much stronger business in the long term, have happier staff and more money in the bank.

FIRSTLY, IDENTIFY YOUR PERFECT CUSTOMER.

One of the best ways to identify your niche is to paint a picture of the perfect customer for your business. Which customers do you love to deal with? Which customers are the most profitable and professional? Which customers pay on time and never complain about the price? Which customers do you want to get referrals from?


An easy way to do this is to look at your top 20% of customers, and identify what they all have in common. It could be a common need or amount of money they spend with you each month...or how often they buy from you.... or where they live.... or why they came to use your products or services in the first place. Are they '30 something", with 2 or more children who live on the North Shore and drive a Toyota Camry?

THE MORE CLEARLY YOU CAN IDENTIFY YOUR PERFECT CUSTOMER THE MORE PROFITABLE YOUR BUSINESS WILL BECOME.

Once you have done this, then you can start to develop a strategy on how you are going to get more customers like these. It will make a HUGE difference in how you market to these people and how cost effective your advertising and marketing will be. History is 20/20 vision and a great information source for your future, only if you use it to your advantage. Every ad that doesn't work or campaign that doesn't get you results is a learning opportunity... but only if you learn from it.


DON’T GET DISTRACTED BY THE “D” CLASS CUSTOMERS

The idea of actively sending a customer away from your business, possibly to a competitor, is contrary to what many business owners this is logical practice. But pick your customer (or prospective customer) and it can be one of the most empowering feelings that you can achieve in business and will set you on a path to better profitability and better customer service.

The customers to chase away are the ones who seldom buy from you, often complain about minor things, are often the slowest payers and generally a pain in the butt. While you were building your business you put up with this type of buyer, because you felt that any business was better that no business. In reality this type of customer is unprofitable and you would have probably been better off without them to start with. If a business has too many ‘D’ class clients then it surely will go bust, life will be hard and the business will be too susceptible to all sorts of troubles from employees not wanting to work there, to deliveries going missing, to dirty workspaces etc.

Now you know better, so go out there and target more “A class” customers to build you business on and while you are at it, save you and your staff a lot of grief by firing a “D class” customer or two.

For help in defining what sort of customer is right for you an d how to attract more of them, email the author at andyburrows@iconbusinesssolutions.com

The Power of Margins

If there is one certainty in a growth business it is that it is going to consume all the cash you can get your hands on.

If all you had to do was fund work in progress, you just might be able to cope, but there are very large costs associated with growth which need to be funded well in advance of sales. Staff need to be recruited and trained, accommodation needs to be in place, inventory needs to be purchased and stored, computer software and hardware systems need to be implemented and so on. Infrastructure and support costs are lumpy and often need to be in place well before they are needed. Without access to a ready source of cash, growth businesses stall and lose their momentum.

The obvious solution is to have a source of finance available to meet the increasing demand for funding. But banks tend to shy away from high growth enterprises, as they typically don't have the bricks and mortar to secure the debt. That leaves equity funding as the only practical external source of funds.

However, new equity dilutes existing shareholdings. If the business is privately held, then the funds will have to come from the private equity sector and the money will come with conditions.

The only practical path out of this trap is to generate higher levels of cash organically. You do this by increasing margins - reducing expenses or increasing prices. While this may seem a bit impractical, in fact, the high growth business is well positioned to do exactly that. While some progress may be made by reducing expenses, the major source of extra cash will need to come from increasing prices.

High growth businesses are in a unique position. They achieve high growth because they have a number of key product/market characteristics. Typically they satisfy a compelling need, have a sustainable competitive advantage and target a well defined niche market.

Generally, they work in emerging markets where demand exceeds supply. This unusual situation actually allows them to push up their prices as, at least at the margin, the market is not sensitive to small increments in price. A lift in prices increases their margins and generates additional free cash.

Apart from fuelling growth, higher margins allow the business to take greater risks, recover from mistakes and fight off competition. It is like having a war chest which you can use at your discretion to use in the best interest of the business. It could, for example, be used to increase the rate of R&D and thus improve your long-term competitive position or it could be used to undertake an acquisition to overcome a market or growth constraint.

We should never take our sales prices as a given. By changing product positioning, target customers, problems addressed and distribution channels, we can often find ways of increasing the price and therefore the margins. Any sustainable increase in margins will greatly improve the resilience, growth prospects and profitability of the business.