I recently read an interesting Business.com article by Art Saxby. Art Saxby is the founding principal of Chief Outsiders. In this article, he talks about how to achieve success by narrowing your customer base. Sounds counter-intuitive… But how many firms tie up valuable resources catering to high-maintenance customers who often don’t stick around in the long run?
Can You Build Success by Narrowing Your Customer Base?
Here’s an excerpt from the article:
Achieving success by narrowing your customer base?
It sounds counterintuitive, but many small- to mid-size businesses can achieve higher profits and more success by downsizing the base of customers they serve.
Creating the perfect situation in which you and your customer base share common goals, respect, and appreciation can alleviate personal and professional stress and allow your business to grow.
Identifying Positive and Negative Customers
Some customers can boost your profits. Others can break your bank. If you don’t know which are which, you’re jeopardizing your business. Many companies could significantly increase profits overnight by either firing troublesome, unprofitable customers or ratcheting the price up so unprofitable customers leave or become profitable.
- Positive customers truly understand and appreciate what you do. They’re willing to work with you and pay a fair rate for the product or service they receive. When you compare the revenue you receive from these clients to the time spent for their continued business, you should find a fair and practical balance.
While every customer or client cares about price, your positive customers understand the value you bring to their businesses. You understand the issues they have with growing their businesses and you talk to them about ways you can help; they, therefore, understand and value what you do.
- Negative clients, on the other hand, can tax both your business’s operations and finances. For many companies, there’s a constant push to sell whatever can be sold to whoever will buy it. The business appears successful, and salespeople and operations stay busy in this scenario.
However, these customers can actually cost your company money, without really understanding or valuing the benefits of the product or service you provide. Your sales team might have lured these customers in with big price discounts or unrealistic delivery commitments to close the initial sale.
Negative customers often kill profitability by tying up valuable resources, like customer service time, engineering, or inventory. In many cases, these high-maintenance customers leave before you even recover your startup costs.
When is it Time to Narrow Your Base?
One of the biggest clues that your company is spreading its net too broadly in terms of customer base is when most new sales are closed due to low prices and discounting. To sell to a wide audience, a product or service must have broad appeal.
However, if everybody likes your business, but nobody loves it, you are forced to compete on price. By trying to reach everyone, you meet a bit of everyone’s needs, but not enough of anyone’s specific needs for them to pay you a premium. It’s also possible you’ve loaded up your product/service with things customers don’t care about and aren’t willing to pay for.
Analyze Your Sales Team’s Invested Time
Analyze your sales team’s invested time. This process can reveal which customers take up the majority of your business’s efforts. Often, a salesperson will cater to certain companies or segments and have specific product lines she likes to push. It’s a natural tendency to gear your efforts toward your interests, but this approach can really inhibit a company’s growth.
The likes and dislikes of a salesperson can actual control a company’s growth. If everyone is only focusing on what they consider their specialties, productivity and shared goals can suffer.
Focusing on price versus quality, and on isolated sales efforts versus a unified vision, can weaken your customer service and profit potential.
Companies can increase profitability by avoiding unprofitable customers. Clients only interested in price are often unfit for long-term business relationships.
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