What is the most important thing you can do in 2023 to grow your business?

Since it is the holidays, the spirit of the season abounds. So, while we are bustling about preparing to be with family and enjoy our holiday traditions, as business leaders, we are scrambling to close out 2022 and be sure we have built a plan for 2023 that will help the organization accomplish its goals. If I could give you one gift that would generate the biggest benefit for your business next year, it would be to enable you to effectively segment your customer base, focusing your resources on the areas of highest return.

Some of you are not convinced. Perhaps you believe that your business reputation is built on the concept of great customer service for all customers, and you couldn’t possibly segment customers if it means treating them differently. I have two questions for you.

  1. What percent of your revenue and profit is generated by 20% of your customers? If you are like every business I have ever worked with, most of your profitable volume comes from a small handful of customers. I have clients that have two large customers that generate over 10% of their revenue and the top ten are 40% of their revenue. A non-profit I work with has found that their top ten donors contribute almost 40% of their total operating budget. They have approximately 1,000 donors. To double their budget, they don’t need another 1,000 donors, but about 20 of the right donors. Neither is easy to obtain but one is a wish, and one is a targeted plan. Have you taken the time to analyze your customer base to figure out how much each is contributing? It is one of the best uses of your time. Ideally, you have an effective data base to generate this information. I suggest you look at it over multiple years to assess any trends. Are your ten largest customers growing as a percent to revenue? Are their margins at least equal to the average or are they lower (did you buy their business?). How many do you lose each year that you have to replace just to get back to your baseline sales? The more you lose, or are declining in volume, the harder it is to grow. It is why some businesses hover at a sales volume over the years—they just don’t get traction past their current level, in part due to lost business and in part by a market approach that is designed to operate at that volume. Those companies are perfectly designed to achieve the outcome obtained due to their processes, and more importantly their mindset.
  1. How can you allocate your resources to align better with those current and potential customers who can generate the largest return? Once we answer question one above, it creates awareness that while every customer is valuable, they are not of equal value. Once the top contributors are identified, it is important to ask if they align with your value proposition. Do they value what your organization provides better than any other alternative? The goal is to retain these customers and find more like them. To do that, it is imperative that the value proposition is designed to provide them the services, the solutions, and the resources needed to help them excel and thus earn a larger share of their business while appealing to more like them. Time to assess where the organization is putting its time? Is it spending as much time to sell and process a $100 order as $1,000 order as a $10,000 order? You get the picture. If as much effort goes into special pricing, order exceptions, custom billing, technical support or other operational services for the small orders, there is no time to specialize in and develop the skills for what is needed to retain the larger orders and to learn more about their future needs. If the organization has 50-70% of customers generating 25% or less of sales, potential is limited as there is no time left to prospect current and new high potential accounts. The idea is that 80% of your business model is designed to provide the value proposition that will allow growth with key customers, and less than 20% spent on supporting small customers, perhaps using new tools such as automation and simpler ordering approaches. Organizations should not invest in tailoring services or products that deviate from the standard offer unless it is a rare occasion where it is necessary to stand behind promises or cultivate a smaller customer for their future potential. Evaluate each department to define what is necessary to provide high quality but “standard” service for smaller non-growth accounts vs. investing in specialized tools, processes and services required to better know, cultivate, support and problem solve for high volume current, or potential, customers.

There are tools available on my website here to help with this effort. Or feel free to reach out to me with questions. It will bring me great joy to know that you are pursuing the opportunity for a happy and prosperous New Year!

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