 | ||||||
 | ||||||
 | ||||||
|
||||||
|
||||||
|
||||||
|
||||||
|
||||||||||||||||||||||||||||||||||
 |
||||||||||||||||||||||||||||||||||
 Plaid Group Newsletter Join The Plaid Group mailing list and you’ll receive a free bimonthly email newsletter filled with insights and ideas you can use to enhance your company’s operational performance, spur growth, and increase bottom line profits. In Uncertain Times, Focus on the Right Customers Profitability – not growth at any cost – should be the mantra for 2009. by Tim Smith, Principal  [ Print Version ]It’s time to get serious about the quality of your customers – and the profitability of the transactions your company conducts with them. As we head into 2009, economic uncertainty hangs heavy in the air. The worldwide credit crisis, a slowing economy and stock market woes all have business people worried and anxious about the future, and understandably so. But my advice is to stop listening to the gloom and doom and start working to strengthen your company’s bottom line. While others are fretting and wringing their hands, you can take advantage of the economic downturn to ensure that your business is focusing on the right products and/or services and the right customers – not chasing growth at any cost. No More Boom There is no doubt that this less-than-ideal business climate is a big shift from the boom we’ve experienced during the past few years. During periods of economic strength, business expands and many companies focus on growth – they want to get as much of the pie as possible. Now, we’re seeing the start of an economic contraction, and business managers are looking for ways to do more with less. And that means improving operational efficiency – always a good habit regardless of the economy. But in their haste to cut costs and preserve profits, some managers focus solely on what happens after an order is received, and never look at the “front end” of their business – customer acquisition. Remember, profitability doesn’t depend solely on how well you handle business. The quality of the business you transact is equally as important. Your ability to deliver depends largely on what your organization is prepared to deliver. In other words, you need to be sure that you are pursuing and acquiring the kinds of customers that are best for your company – those that you want and that you are capable of serving. The better the fit, the easier it is for you take care of your customer, and the more likely you are to shine. Conversely, the worse the fit, the harder it is for you to be profitable because all facets of your operations are cumbersome. For example, imagine a new customer that needs a great deal of customization. That customer may look good at first, but the uncommon requirements could result in slower processing, more mistakes, higher costs and more opportunity for internal conflict … all of which can lead to a poor customer experience, lower profits and a drain on management’s time and attention. Starting At The ‘Front End’ So, how do you make sure you are paying enough attention to the “front end” of your business – acquiring the right customers rather than just any customer? The first step is to work with your leadership team – key employees from marketing, sales, operations, accounting, and IT – to answer these questions:
Finding The Right Fit 
A colleague of mine shares a story that illustrates this issue. His service organization was structured to support a handful of large clients who paid high fees and in return, expected a team of professionals who were dedicated to their account. When the company hired a new leader who started bringing in multiple clients paying small monthly retainers – without adding staff to handle them – it didn’t take long for the disconnect to cause problems. Professionals were pulled from the large account teams to service these new clients. And in short order, the larger accounts – where the majority of the company’s profits came from – began to leave the agency when they recognized that their “dedicated” teams were handling other clients and were not as accessible as before. In other words, the new customers didn’t mesh with the existing business model and though they represented growth, they actually wound up severely damaging profitability. The new president failed to match his new business “wins” with the company’s ability to service them. I once had a client that experienced a similar issue. The business rented audio and video equipment, and they operated profitably as long as they stuck to their core business of renting a few items for a few days at a time. But management had a big idea. If they were profitable renting individual pieces at daily rates, imagine how much money they could make servicing large A/V production houses or professional event companies! The good news was that they quickly found a huge market for their new model. The bad news is that they didn’t have the talent, labor or infrastructure to support these large, demanding customers. So while they generated a lot of new revenue, they failed to make a profit. Their explosive growth basically eroded their profits until the business failed. Customers Benefit, Too The matching process is critical for businesses and their profitability. But it also benefits your customers, too. Here’s another example, this one from my personal life. I used to rely on one general contractor, Glen, for all of my home repairs. He was fast and affordable, and his overall quality was good enough. But whenever I asked him for guidance/advice on a project, he would say, “Hey, I can do whatever you want.” That wasn’t helpful – I don’t have the time or inclination to research all of the alternatives for my home repair projects. So we’d both be stuck. He was waiting on me to decide. And I was unsure of how to proceed. After a few years and some rough experiences, I realized that I needed a different kind of contractor, someone who has good ideas in addition to good skills, and who can guide me to make proper decisions. And while quality and price are important, I need someone who is willing to collaborate with me to explore options and develop solutions. And that’s exactly what, David, my new contractor, does. He gives me alternatives and talks with me about the pros and cons of each one. Then he delivers exactly what he promises and I’m happy to pay him quickly when the work is finished. Glen is no doubt happier now, too. He can work for customers who know exactly what they want and don’t need his consultation. In the examples above, it’s not that the small client business model was wrong, that it’s wrong to rent A/V equipment on a large scale, or that Glen isn’t a good contractor. It’s that none of those were the right fit with the customer. That’s the bottom-line message. First, Understand Your Customers Now is the ideal time to focus on gaining a clear picture of your customers and their needs and preferences. Invest time during the fourth quarter of 2008 to identify your ideal customers and the attributes that make them a good fit for your business model, and then you’ll ensure you aren’t chasing unprofitable business in 2009. And if The Plaid Group can help you work through this process, let us know. In the meantime, if you’d like to read more about business development and managing the sales process, click on the links below for past issues of The Plaid Group’s newsletter that tackle this subject. Or visit our website at www.plaidgroup.com and click on “newsletters” and then “archives” to find the issues listed below.
More Information? If you’d like to learn more about focusing on the right customers for maximum profitability and company performance, please send an E-mail to info@plaidgroup.com, visit our web site at www.plaidgroup.com, or call us at 713-627-3569. The Plaid Group publishes a free bimonthly e-mail newsletter filled with insights and ideas you can use to enhance your company's operational performance, spur growth and increase bottom-line profits. To subscribe, change your e-mail address or unsubscribe, please visit www.plaidgroup.com/newsletters_subscribe.asp. Author's Note: Tim Smith is a Principal with The Plaid Group. The Plaid Group helps companies simplify and stabilize their business operations to improve financial performance and gain a competitive edge. Copyright 2008 The Plaid Group |
||||||||||||||||||||||||||||||||||
|
 |