Every company wants to increase profitability. The first place they should look is actually not to new leads, but inward at their own operations. 99% of businesses are missing out on potential profits. With minor tweaks, a business owner can begin to realize thousands of dollars or more in his or her pocket. After 35+ years of performing business valuations for thousands of clients, patterns started to arise. The most common areas of profit leaks have become very clear to me. There’s one area I always look to first to discover profit leaks: profitability by customer.
Which customers are most profitable to your business?
Ask most business owners this and you’ll be met with blank stares. Most businesses treat their target customers the same. But they’re not. Without knowing the different spending patterns and behaviors of different customers, a business can lose thousands or more in potential profit. People within different market segments spend their money differently. This shouldn’t be a surprise. As Donald Norman said, “market segmentation is a natural result of the vast differences among people.” Divide your customer base into as many segments as practical. The more segments you have identified, the better. This may mean dividing up your customers by… Geography, age, industry, size, etc. Find out more on customer analysis from brandwatch.com
Identify the Most Profitable
After segmenting the customer base, understand your KPIs for each segment. Understand which statistics are the biggest factors in profitability and measure those factors for each segment.
How much money does it cost to acquire a customer in each segment?
How much does each segment typically spend?
Once you’ve split your customer base into segments and answered these questions about each, you can easily identify the outliers in both directions. Some of these segments will be much more profitable than the average, and some will be much less.
Target, Target, Target
Without knowing which segments are most profitable, it is likely that marketing was previously aimed at a broad audience. (To read more on finding your target audience check out this article from lotame.com.) Now that you have identified which customers are most and least profitable, stop wasting money by marketing to the least profitable customers. Instead, double down on the most profitable ones. Learn everything about your most profitable segments. Learn their buying habits, their motivations to buy, their most pressing pain points and the things they value most.
Become conversant in their tribal language and begin to even think the way they do. How can you do this?
- Read their trade journals.
- Go to the webinars they go to.
- Converse with them as much as possible.
The more you get inside of your target customer, the more personalized your marketing will be towards them and the more effective it will be as well.
If you’re not segmenting your customer base, you are inevitably losing out on profits.
Most businesses wish to serve a broad audience. Meanwhile, most of their profits are actually coming from few segments and they are blissfully unaware of the profit they could be making.
By eliminating their focus on the unprofitable segments and doubling-down on their focus on the most profitable ones, a company will see much higher profit margins very quickly.
Get started with JBVal today and explore your most profitable segments.
Another power tip to small business owners and their advisors from us at JBVal!