Managing Your Customer Base: Proactive VS. Reactive, Your Choice
Needless to say, business has always been highly competitive. We live in an era of increasing competition due in part to technological developments, increasing availability of information and the constant focus on cost reductions. As such, knowing your customer base is even more critical today. Although many executives think they understand their customers, the question becomes, “Do you know what you need to know?” If you don’t, that knowledge gap might become your greatest unknown risk.
Managing your customer base goes well beyond knowing who your customer is or connecting with them on a personal level. To be a truly successful business, it is essential to understand each customer’s relevance to your overall sales picture:
- Do you know who your top 20 or 50 customers are by revenue?
- Who are your top customers by gross profit?
- How many names are on both lists?
- How do you manage and protect these relationships?
- What about the breadth of your product offering?
- How entrenched is your relationship, beyond incentive trips and personal contact?
In the “busyness” of working in the business, it is easy to miss the significance of these key relationships. More importantly, business owners must determine their comfort level as to how concentrated these relationships should be. This may help you to broaden your customer base and reduce the financial exposure associated with over-concentration.
Proactive management of your customer base is a great focus topic to work on with an executive coach. Together you can develop a template that will help you better understand your customer profile and revenue risks. Consider the following: how many of these questions does your firm have a current database for? Can you readily share it with your bankers or other stakeholders?
You should have a list of:
- Your top 20 customers by name.
- What your top 20 customers generate in sales revenue.
- An average gross profit margin of both revenue and gross profits. Is the gross profit ratio different than the total company ratio? Why?
- The credit profile of each of your top 20 customers. Are they each financially strong, do they have any business challenges; in fact what do you know about their business?
- How might technology change their demand for your product or change their business? Can technology replace you as a source of product or service?
- On what is your relationship built? Price? Service? How is your differentiator susceptible to a new competitor?
Once you get past the profile of your customer base, you need to identify your customer’s degree of satisfaction with your service offering to better plan your business strategy. Will you need to invest to keep up with them, or will they someday need to move on?
To do this, you and your business coach should develop key performance indicators, the measures that customers might use to determine their satisfaction. Go beyond historical month-end or quarter-end data. Anticipate forward data you could develop to identify interruptions or delays in performance and communicate in advance to your customer, before non-performance becomes an issue.
Customer Relationship Management is a much more sophisticated challenge today than ever before. Whole companies exist to service the information needs of CRM. Meet with your executive coach or mentor and assess your CRM structure. Together, you can develop an action plan and avoid unnecessary risks.