Understanding your customers

Understanding your customers to improve your small business marketing

There are any number of phrases around the importance of your customers:

  • It costs 10x more to acquire a new customer than to keep a current one
  • a bird in the hand is worth two in the bush
  • A happy customer talks to two people; an unhappy one talks to everybody

These are just some that relate and I am sure you can suggest many more (answers on a postcard please) and they are all so true.

Customer Understanding is a “measure” function that should be undertaken periodically.  The first time gives you a base, from which to start.  The 2nd, 3rd and ongoing measures provide you with a performance review and a good picture of what sort of service you are delivering.

Let’s start at the beginning (more to follow):

How many customers do you have?

Has your customer count increased or decreased compared to last year and the year before?  The last couple of years have been difficult for a great many businesses and so it is expected that customer numbers will have dropped.  Many companies have been extremely happy to see their customer numbers simply remain stable; a great many have also seem them tumble and are struggling.

Within your customer count, has the average spend increased or decreased? A decreased spend is usually bad news but it will depend on what they are buying and, more importantly, how profitable those products or services are.

How profitable are your individual clients?  Do your clients follow the Pareto’s 80:20 rule?  Do you have 20% of your clients that generate 80% of your profit?  If this is the case, what individual contributions to the 80%, that make up 20% of your profits, actually contribute? If there are clients who are costing you money, why haven’t you dumped them? I am sure you can think of better ways to use the money they are costing you.

None of this is that difficult to measure, if your finance people have a good understanding of the costs within your business.  The first time may take a bit of time to calculate the results but, I promise you, it will get easier.

Why do this?  Simple: because companies that end up relying on a small number of customers for a large part of their profits run a real risk of the business failing.

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