Why Great Customers are so important
You’ve heard of the Pareto Principle. Applied here, we can say that 20% of your customers bring you 80% of your revenue. For that matter, 20% of your customers cost you 80% of your marketing and service budget. And they are rarely the same customers. What if you could get more of those top 20% of your income generating customers and drop the bottom 20% of high-cost customers?
You know that your business would be easier and it would be more profitable.
We’ve already talked about how to pick out your great customers using the smile test (if they make you smile they are great). You should also do a financial analysis to see who spends the most money with you (I can help you with that). But, it’s not always straight-forward.
For instance, one of my clients owned a women’s clothing store. We did an analysis of her customers, sales and most importantly the profit margin on specific lines of clothing she carried. We realized that the line she put front and centre, and the one she thought was bringing the big spenders into her store, paid her the smallest margin – little more than break even. She reorganized her shop around the lines with the highest profit margins and 2 important things happened. She sold more as her clientele shifted; and her profits increased because she kept more per sale. That shift didn’t cost her anything and it significantly increased her profit. Are there tweaks you can make in your business like this? Yes there are.
Who are your best customers?
My best customers look for other ways to work more with me. They come to me with interesting projects they haven’t done before. They feel confident in tackling new things because they can tap into my financial skills and my experience working with 100’s of different businesses in many industries. It’s requests like these that have given me the idea, the experience and the confidence to shut down my bookkeeping business and follow this idea down the rabbit hole.
I have another client who over our time together has sold off a business, consolidated another so that it works from her strengths and is pursuing her passion project on the side. Her life is her own. As she pays me, she thanks me, sincerely!
How do you find more of them?
I find more by telling the success stories of my best customers. I tell the stories of clients who become friends, who are taking on interesting projects and who see the world as abundant and hopeful. I tell those stories because they attract awesome people just like them and just like you.
I have another client who is amazing at her work. She is knowledgeable and smart about how to make her knowledge work in each client’s situation. She calls one part of her business her bread and butter work. It is boring, reliable and it pays okay. Her industry (like most) is changing and another part of her business is slowing down with the vicissitudes of the market. She is reluctantly doing more of the boring part. This is putting her in the position of not having the time and brain space to move with the market. At the same time, her bread and butter work is becoming commoditized and her opportunities are shrinking. I tell her story more as a cautionary tale. I could tell the successful parts of her story, but I don’t want to attract more like her, as much as I love her and value her.
What if you are happy with the way things are?
Nothing stays the same. You are either getting better or you are losing ground. Let’s work together to get your business and life improving.
Another story: one of my client makes a beautiful handmade product and was looking for ways to sell it. We analyzed the most profitable current methods (given time and cost). We talked about wholesaling, opening a location and selling directly at shows. She was doing some of all of those things. As always we do a gut check after we do the analysis. This is about more than just maximizing shareholder value, right? As we talked about festivals she had attended in the past and the associated road trips, her eyes lit up. A dive back into the numbers showed us that while she wouldn’t make the most revenue that way, she did make enough. The interesting thing is that her costs would be lower and part of those costs would be travel for her and her husband. The outcome was she got to travel and have fun while making more money.
How would you like to make more profit while making your business give you what you want?
I made a video about the 3 common mistakes that small business owners make around their customers. Have a look.
I made this video for a workshop series. Obviously that doesn’t apply anymore, but the information is still valid.