How to perform one customer at a time
Organic growth is achievable for any small business. The art is to know where you extract value in your business and understand what your customers value. If you can correlate these two aspects of your operation you will succeed both in growing existing customers and winning new ones. If you know the type of people that make you money and know precisely what it is they value then you have the recipe for becoming more profitable.
Organic growth can be generated in three ways:
1. persuading existing customers to buy more products or services
2. retaining existing customers for longer
3. acquiring new customers.
The most effective way of achieving organic growth, since the cost of keeping profitable customers far outweighs the cost of acquiring new ones is to manage the existing ones. In their book Service America!, customer service gurus Karl Albrecht and Ron Zemke say it costs five times as much to gain a new customer as it does to keep an existing customer.
The key strategy – and we look here to how things were done in quainter times – is to try and treat every customer as an individual. The aim is to get as close as you can to this ideal while working within the constraints of your business. SME’s can end up outperforming larger organisations in this area, as they have a natural advantage of being closer to their customer. Obviously as the size of your business grows, this becomes more difficult. However, there are a number of tools and techniques that will help.
Segmentation: how to know your customer
What is customer segmentation? It is the act of dividing a market into distinct groups of buyers who might require separate products and/or marketing mixes. These segments must be measurable, substantial, accessible and actionable.
Big companies aspire to behave like a small business and segmentation is their tool. For example, when customers phone into a large organisation it tries to treat them as if they know who they are. It uses technology and various techniques to get as close as they can to the customer.
Small and medium sized businesses often forget that this is what makes them successful. What big concerns spend millions of dollars trying to emulate is what should come as second nature to a small business. Treat your customer as if you know them to the point that you care.
Markets can be separated in various ways, such as demographics, geography, behavioural characteristics, values, personality or life stage. However, the most effective way to grow your business is to segment your markets by profitability, such as high profit, medium profit and low profit.
Differentiate your business
You need to give your consumers a standout reason to buy from you because there is always someone else who will take the sale. This reason to buy needs to be something other than cost. If you play the price game you will eventually go broke or make such thin margins you will never have enough cash flow to grow.
The best way to make customers want to deal with you is to understand their needs and be able to espouse the value of your business as it relates to what they value.
This customer-centricity is vital to small business. It requires you to understand what drives your profitability: how you interact with customers or channels so you can be in a position to make decisions that impact positively on your profitability and on your reputation and relationship with your customer.
Once you understand what your customers value, try to discover what it is about your competition they don’t value. This will tell you all you need to know about winning that customer.
The companies that are generating the most growth are the ones that have taken the idea of segmentation the furthest. The approach is generally product agnostic. You just need to think about what products you offer each segment and at what price. Maybe you need to invent a new product or repackage an existing product.
SMEs must understand profitability. Large companies can afford products to fail. Small businesses go broke on such failures. So knowing exactly what drives the profitability of your business is vital.
Often, profitability is derived from the full value chain of your business, not just one silo. A sales manager might say he could increase sales by 20% if he had more stock available. That sounds great on face value – double-digit growth. But for profitability it may not be double-digit growth because now you have to start discounting portions of your stock or carrying stock longer and the overall profitability equation changes.
To understand your businesses’ profitability you need to collect information about your customers. Companies generally have far more information than they ever use – even small businesses. IT is partly to blame. Many big businesses spent millions on customer relationship management systems that never met their promise.
Once the information is captured it cannot be allowed to languish in silos. Your people must know the value of the data and how to leverage it. For example, you don’t want to attempt to up-sell a customer who is not paying their bills. And there is no point spending marketing dollars talking to 100,000 people when there are only 1,000 you should be wooing.
With more choices and information available to them, customers are not as loyal to one provider as they once were. This makes it vital for growth-minded companies to not only seek ways to strengthen relationships with existing customers, but also enhance their value proposition to attract new customers.
The best place to begin the search for new customers is your existing customer base. If you know which customers make you the most money then you also know the profile of the new customer you should be pursuing.
Which people paid top dollar for your premium product and gave you your best margin? How did you get them? Once you know this you know how to get more of them. And you should be able to find this out easily if you are collecting information about all your customers.
Be clear about who you are trying to target, know why you are targeting them and know whether you have been effective or not.
If you target the right people you will find they are receptive to your message. Most of us want information about those things in which we are interested. For example, if you are in the market to buy a BMW you would watch a 10-minute infomercial about the car. You would even watch an hour-long documentary if you were spending that much money.
Engage your employees
If you are an owner-operator of a small business, one of the problems you face is how to get your staff motivated to espouse the same value proposition that you espouse about your business. Successful SMEs ensure that employees provide the same emotional buy-in as the owner operator.
Think about what information you have, and would like to have, about your customers. Review where your profit comes from (which products, customers, and where appropriate, channels). Understand how different customer groups have different needs and plan accordingly. Most importantly, regardless of your business plan, interact with a customer as part of a lifetime arrangement, not just as a transaction.