Monday, March 12, 2012

Factor #5 of 10: Clients


Customer base

In the Self-Assessment, we asked you this question:

  1. Our business’ client or customer list is:
    1. broad, no one client or customer base provides more than 10% of our revenues.
    2. fairly broad, no one client provides more than 30% of our revenues.
    1. reliable “walk in” high traffic customers, with a history of solid volumes.
    1. based on “walk in” low traffic customers, volumes goes up and down.
    1. narrow, we have one client that provides 60% or more of our revenues.

Many small to medium sized business owners never take the time to understand their client or customer base. They simply work with whoever comes along. While many small businesses may thrive with a few close customers, buyers will review your customer list or numbers of customers for your products/services with a critical eye.

The Buyer will perceive a business model where you have a few clients means the loss of one client significantly reduces your revenue. Models where customers simply walk in the front door will require detailed histories of customer seasonal cycles and frequencies of business to demonstrate stable future activity levels.

As a Buyer this type of information is a critical part of estimating the future sustainability of your business model. The description of your business opportunity should clearly identify the type and structure of your customer base. A solid customer list spread over a broad number of customers or solid repeatable customer traffic numbers demonstrates lower risk to the Buyer. Lower customer risk contributes to the sale-ability of your business.

TO DO:
  1. Prepare a simple explanation of your client or customer profiles. I.e.: "Who makes up your client/customer base?"
    1. Do they continue to return for your product or service on a regular basis? Why?
    1. Draw a pie chart of your top 50% of your clients. What does this tell you?
    1. What would you like to see if you were the Buyer?

  1. Once you have summarized your client base, determine where your risk might exist. For example:
    1. Too much reliance on a few clients.
    1. If your business model is based on "walk-ins" only, how can you increase traffic? If your costs are fixed anyway, new clients/customers above your historical activity levels and the revenues generated contribute directly to your bottom line.

  1. Develop some simple strategies to strengthen your client base. Decide where you see the greatest opportunity for improvement. Identify the top 2 or 3 key ideas and start using those strategies today. Note: if you measure your progress to determine which of the 2 or 3 key ideas work the best, you can soon focus on the top 1 or 2 for the most effective & efficient results.