Tag Archives: Customer Value

Small Customers – A Neglected Resource

The efficiency focus of the past 18 months may well have added substantially to the risk profile of companies, while simultaneously reducing their profitability.

After all, efficiency for most means focusing on the largest customers – allowing one to reduce headcount (less people, managing fewer customers), reduce transaction costs (fewer, larger transactions) and, in many eyes, reduce risk (bigger customers are more trustworthy).

However, aren’t your biggest customers the ones that demand, and generally get, the best prices? Do your biggest customers not get the longer payment terms they request? Are your biggest customers really less work than others?

And what about the impact on your business of the failure to pay of one of your biggest customers? As we’ve seen, they’re far from invincible.

Conversely, most businesses will find that their smaller customers:
• Deliver better margins;
• Will pay more promptly (if for no other reason than you have more leverage);
• Are no more work than the larger ones, and often less so as they are less demanding;

On top of this, the impact of a failure on your business is far less severe, and you substantially reduce your overall business risk by spreading a given value across a number of customers, instead of concentrating it in one place.

What’s more, as business starts to pick up, the companies likely to grow most quickly will be the small ones – a 20% growth on $1 Million revenue is generally a good deal easier to find than a 20% growth on $1 Billion revenue. So having a good number of smaller customers will improve your growth prospects, too.

Analyse the true profitability (return on working capital, including all costs) by customer segment: you’ll find it a very interesting exercise.

I’m not for a moment advocating that you fire all your biggest customers, but rather that you not just focus on larger customers at the expense of smaller ones. As with all things in life, you need to achieve a balance.

Small customers should be embraced as much as large ones – after all, if you have a ready resource that will help you grow faster than the market average while improving your profitability and simultaneously reducing your risk, shouldn’t you make the best use of it?

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Is there value in a Repeat Customer?

Why is it that although every marketing book / article I’ve ever read tells me with authority that it costs 5 (or more!) times as much to get a new customer as to sell to an existing one, so few companies understand this?

Do their executives and marketing people not read?

I know you’ll have many examples of such wasted opportunity, and I’d love to hear those that stand out in your mind, so to get the ball rolling, let me give you a couple of – to me – amazing ones…

Newsweek is top of mind at the moment as I have just received my annual renewal notice. This ongoing piece of optimism on their part really baffles me as the renewal fee is almost exactly TWICE what I would pay to take out a new gift subscription, and that excludes the (admittedly dubious) value of the little extras they send with gift subscriptions.

When I queried this with the “Customer Service” people at Newsweek a couple of years ago, all I got was a rather terse note saying that the renewal price is the best available offer for my country. This in spite of me providing them URLs to prove otherwise in my original query… So, each year for the past several years I’ve allowed a subscription to lapse and taken out a new gift one, saving myself a tidy sum in the process.

This is, of course, a lot more expensive for Newsweek: apart from the trinkets, they always allow a lapsing subscription to run on for a few issues while they send out several reminder letters.

Why not just give subscribers the same deal (without the trinkets) and save on the letters, too?

Another great example is that of Consumer Electronics stores – full disclosure: I love gadgets and electronics stores. The opportunities they miss to get steady repeat business are legion! Let’s face it: they have my information as I invariably pay by credit card and they could easily ask me to sign up for a “loyalty card” or just permission marketing.

But they don’t.

Each time I visit, I’m treated as a brand new customer (not a great experience in most cases to be honest). They miss opportunities to sell me upgrades or add-ons for products I’ve previously purchased (unless that’s the purpose of my visit). They don’t keep records of what sort of things attract me so I can be carefully guided by the marketing people to buy more. In fact, they have no idea who I am at all – and yet the company executives that I’ve come to know from some of these stores are searching for extra sales, especially in these tough economic times…

When are companies going to wake up to the real, lifetime value of their customers?

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