Most companies I know struggle to find the right balance between too few descriptors and too many when describing their customer targets. Others, sheepishly admit their customer is anyone who fogs a mirror and carries a checkbook! When sales are so important to our business, and we can never have enough, why would we ever want to limit who we sell to?
Although it may seem counter-intuitive, we limit it because we will sell more when we do. Why? Because every organization does some things better than others. When you focus on your strengths, and really pull away from the competition using those strengths, you will appeal to customers who need what you are good at. In fact, it is where their needs intersect with your capabilities that you will find your sweet spot for growth.
The best way to define your target is to think of it more like a target with a bull’s-eye. The inner circle is your target and you design 80% of your business model to meet their needs. The next ring is for the secondary target and you give that 15% of your resources. The outer ring is for everything else–all the opportunistic, oddball, or non-target business that finds you. At best, you devote 5% of your resources but you can’t take your eye off of the main focus for the business.
How to decide which customers go in each tier?
Answer these three questions:
1. Who do you make money on? Not all customers are profitable. In fact, up to 40% are not. So let’s focus on those who are!
2. Who do you best serve? Which type of customers most need what you do best? Are they industry leaders? Are they of a certain size or ownership structure? Do they focus on certain segments themselves? Define the common characteristics in a manner that your sales people can find them in the market place.
3. Who will you grow with? As the market changes it is possible that the ones that got you here won’t get you there. It is important to understand market trends and adapt to that. If you are going to commit to focus your business on this segment, be certain there is long term viability.
Let’s look at an example:
Ritz Carlton is a top of the line hotel chain with exceptional service. Who do you think is in their inner circle? People who can afford to pay top dollar and consequently expect top service–like a personal butler. They cost structure invests in service and amenities to serve the rich and famous. How about the second circle? Those who like to play in luxury like to work that way too. Top CEO’s and entrepreneurs frequent the Ritz. So they add a business center and probably spend 10-15% of resources on providing related services. Who is in outer ring? People like me. Hard workers who may splurge a time or two but generally look for a great value vs. total luxury. I may stay there for a special occasion but will never be a regular. They shouldn’t spend a cent on marketing to me or catering to me. I know their reputation and admire what they do. When I decide I am willing to indulge for a night or two, I will pick up the phone and call and they will happily accommodate me. It costs them nothing extra.
Have questions or need more examples? Get in touch!