Focus On The Customers You Have

As entrepreneurs, we tend to spend much of our time thinking about customer acquisition. We spend money on marketing, advertising, and website design. We offer discounts, promotions, and special pricing to bring in that next new customer. Maybe we should shift our focus.  According to The Chartered Institute of Marketing, customer acquisition costs are 4 to 10 times more expensive than the cost of retaining customers. 

Consider that statement for a minute. How much have you spent on customer retention activities? For many companies, other than administrative costs of billing and collecting, their investment in keeping current customers is zero. What might it be worth to your company if you could increase the depth and breadth of the products or services you provide to your current customers? This year can be the year you refocus your efforts and achieve even greater success at a lower cost. 

Start by reviewing what you know. 

• Product data. What are the top selling products or services by customer type, geographical area, and time of year? Once you have some data on the top products or services you can start researching the buyers. Try using Microsoft Excel or Power BI to analyze this information in graphical form. 

• Customer data. Are there similarities between customers who have increased their purchases over the past few years? Look to spot any meaningful trends. You might want to track number of employees, average revenues, Industry NAIC codes, or Associations they have joined. 

Then gather more information. 

• Survey your customers. Once you review the data, select 5-10 members who are showing increased sales activity and give them a call. Find out what accounts for their positive sales activity.  Do the same for customers who have shown a decline in orders. Spend some time learning about their business and how you might help them address any concerns they have. What are their goals and how has their business changed over the years? 

Design programs around the information you gather. 

• Customer loyalty programs. Do you have a program in place to reward your frequent buyers? Consider offering special events, unique products, or bundles that are available only to your preferred customers. 

• Special terms or priority shipping. Consider offering a program like Amazon prime that rewards your frequent buyers. 

Stay in touch. 

• Personal notes. Try reaching out to select customers periodically with a simple “Thank you for your recent order. “  In an age of digital communication, a handwritten note really makes an impression. 

• Social media. If you are already active on Twitter or Facebook, look for ways to engage with your current customers. Pay attention to any feedback they share either publicly or in provide and act quickly to rectify any problems. 

By turning your focus to your existing customers, you can reduce the amount of time and energy you spend tracking down that next new customer. Instead, you can develop the kind of deep and lasting relationships that keep your customers not only coming back for more, but also spreading the word to their friends and family. And who doesn’t want to acquire more of the right customers? 

Learning From Mistakes

Few people enjoy making mistakes. Most of us begin the day striving for perfection. But sometimes we’re risk-takers, daring to try new and unproven approaches to doing business. Other times we’ve taken our eye off the ball and we miss something.  And some days, stuff just happens: machinery breaks, cable networks go down, or snow closes the road to our important client meeting.  Mistakes are just part of life. 

“The successful man will profit from his mistakes and try again in a different way.”

-- Dale Carnegie via www.brainyquote.com

However, we are not hapless victims. We have a choice in how we respond to mistakes both in business and in life. We can let mistakes ruin our day, our week, and eventually our business. We can let them fester by replaying the details of each mishap in our heads until we go crazy.  Or we can use mistakes as a profound source of learning, helping us identify process improvements, employee coaching, and new ways of customer engagement.   

Here are ways in which common business mistakes appear in our accounting software: 

Product returns. Returns include either a complete refund of a product purchase or a replacement shipment. They might be seen as a huge source of business frustration and lost revenues. Or they can be seen as a great way to improve your product, your shipping methods, or your database. Think of the data you can capture when someone returns your product.  But you need to store and organize that data for future analysis. 

When you enter a credit memo, be sure to record notes along with it. Use your software’s credit memo feature to reverse either the entire invoice or a portion of the transaction. By returning inventory items, you should be able to automatically adjust your inventory balance. 

• Unpaid invoices.  Once a credit memo is entered, the customer’s account balance will be correct. 

• Paid invoices.  If the return is made after the customer has paid the invoice, you will need to cut a check to the customer. Be sure to select your customer when creating the return payment.

Pricing Adjustments.  Use credit memos to correct either errors in pricing or some level of customer dissatisfaction. Credit memos don’t normally include a product return but instead adjust the customer’s accounts receivable balance. Select the customer information and enter a credit adjustment.  Use either the description on the line items to note the reason for the credit or record additional details as a note on the document. 

Timely and efficient handling of customer returns, credits, and complaints can provide valuable insights about your business while serving to leave a lasting positive impression with your customer.  

One Measure You Must Know For Your Business

Lately, everyone (including the author on a regular basis) has been talking about business intelligence, financial analysis, and gaining insights from your data.  It’s absolutely true; in order to have a successful business, we need to be able to understand the data and evaluate our results. We need to measure and analyze. But it is easy to overcomplicate things by trying to figure out exactly what to measure, which reports to run, and which transactions to view in that Pivot Table of yours.  So let’s take a step back for a moment and go back to basics.  

Rather than getting lost in the madness of measuring everything under the sun, why not start with one key measure.  Once you master this, you can move on to other more exciting and hard to explain measures. But this one is pretty important. 

Break-even point

The break-even point is defined as the number of units you must sell in order to cover your fixed costs of the business. 

  Before you start working the calculator, you need to gather some information:

1. Gross profit per unit in dollars. Calculate the difference between your product sales price and the cost of the item sold. Ideally, determine the gross profit for individual items and then calculate the average profit across each item you sell. Use the average gross profit in the equation below. The costs of each item sold are called variable costs, which rise (in terms of total dollars) with increasing unit sales. (If you don’t know the cost per unit, you need to fix that before you do anything else.)

2. Fixed expenses (often operating expenses like rent and utilities) in dollars. These are the costs you incur running your business, whether you sell a single unit or not. Include costs like rent, utilities, accounting fees, and marketing.  

Once you know the top two figures, the formula for calculating your break-even point is: 

Fixed Costs / Gross Profit per Unit* = Number of units to break even

If your fixed cost of the business is $5,000 per month and you make $100 of profit on each unit you sell, your break- even point for the month is 50 units. You cannot cover the operating costs of the business unless you sell at least 51 units each month. 

Everyone on your team needs to know what this number is and how to calculate it. As per unit profits change, adjust the break-even number of units accordingly. 

How to apply the measure

1. Calculating sales commissions and bonuses. If you are paying sales commissions to your team, you should not start the bonus until sales exceed the break- even point. So in our example, as soon as your sales team sells more than 50 units, a bonus percentage should kick in for the team. Never pay bonuses on sales below your break- even point, as you will effectively be adding to the fixed costs of your business.

2. Evaluate new products.  If you are seeking to add new products to your line, compare incremental fixed costs like new product design and collateral development for each item with the expected profit per unit you produce. Product with the lowest break-even point should be your top priority. 

Start with break-even and go from there. By keeping your eye on the break-even point in your business, you can avoid making decisions that negatively impact your bottom line. 

*also known as Product Contribution Margin 

Open-Book Management

You may have heard talk about open-book management as described in numerous books including “The Great Game of Business” by Jack Stack. The concept is a simple one which at its core, is about an inclusive style of management that allows team members to be involved with the financial results of a business.  

Unfortunately, when it comes to the theory of open-book management and its application, there are more incorrect perceptions than correct ones. Some business owners believe open-books require them to share their complete financial picture, including the amount of their personal salary, or draw with their team members and as a result, eliminate the approach from consideration.  Other owners have no problem sharing their financial results with little or no explanation and then impose goals on their team.  Still, others think they are failing to implement open-book management merely because of the level of detail they are willing to share. Others eliminate open-book management from consideration because they assume it is applicable either to only large companies, or only small companies or to one industry or another.  They try to define the theory based on a rigid set of accounts, or financial statements, or business types and miss the point entirely. 

Open-book management is a philosophy. It is a way of running a business that:

1. Values employees for their knowledge and expertise

2. Matches responsibility with information

3. Associates measures with management

4. Involves the people being measured in creating their own methods and metrics in support of business goals

5. Relies on trust and transparency

If you have employees you want to engage in running your successful business consider these principles and then apply them to the best of your ability. Perfection is not the goal. Take small steps at first and refine them as you go along. Even Jack Stack continually evolved his application of these tools in his business. Perfect or not, by sharing the successes and the failures on the road to achieving clearly defined corporate goals, you will give everyone a stake in the organization’s success and increase your chances of winning the game. 

Turning People Away

Most businesses spend a lot of time trying to attract customers.  We send out mailing campaigns to everyone within a 100 mile radius. We advertise on the local radio station, add flyers to our local paper, or take out an advertisement. We create a website and launch email campaigns in an effort to find anyone who is willing to pay for our goods or services.  Our focus is getting in front of people. But not everyone is a good customer.  What if instead of going after all buyers, we started out by identifying the kinds of customers we don’t want and then built our messaging to weed these people out?  

When I first started my little nerdy content business, I knew I only wanted to work with people who had a sense of humor. I didn’t want to waste my time chasing after prospects who didn’t like my approach.  So I built a website that showcases not only my writing style but my tone.  The name of my business, “ Even a Nerd Can be Heard”, should be a potential client’s first clue. Everything I publish is designed to say,” I don’t take myself too seriously, if you do, I’m probably not the right person for your project.” 

You can do the same for your business. Get clear on your ideal customers and then spend time deciding on the ones that have been less than ideal to work with. Are they the price shoppers? The tire-kickers? The overly picky or the overly sloppy? The last minute reactive types?  The poor planners?  The constant returners?  Once you know what customer type doesn’t fit with your approach to business, design your business around attracting the right customers and avoiding the others. 

There is a seafood restaurant along the boardwalk in Monterey Bay, California that has a large sign on the front door stating it has a “no stroller policy”. Guess who they have decided to exclude as customers?  While the policy may upset starving parents of young children, you can bet this policy has made an equal number of customers very happy.  The ones with no children who want a quiet romantic evening are probably big fans. 

Spend a little extra time to make sure that everything about your business from the design of the building to your marketing efforts is based on the idea of attracting the right customers and repelling the wrong ones.