How to Choose your Customer? | SBDC UNF

How to Choose your Customer?

Customer pulling money out of their walletOverview

Most business owners choose the location for their business carefully. For retail businesses good store visibility and easy access and parking in high traffic areas is paramount. Service businesses seek locations central to the geographic area they serve, with good road access and reasonable rents. Employees are chosen from the field of applicants as well, with businesses selecting those who have the requisite skills, personality, and work ethics to fit in. Vendors are also chosen with consideration for billing policies, ease of ordering, prices, reputation, and timely delivery. Why then, simply hang out the “open” sign and wait to see who shows up? By picking the ‘right’ customers and focusing your attention on them you can increase your profitability.

“Early on in a business, most companies take every client they can get. After a time, some can afford to be more selective to ensure that they are profitable and productive. You shouldn’t get so discerning that you put your success in jeopardy by turning business away left, right, and center, but you can strive to align yourself with the right customers.” Who are the ‘right’ customers for your business? I conducted an Internet search for “characteristics of good customers” and noted that on over a dozen sites covering different types of businesses, these five characteristics appeared on each one along with other business-specific ones:

Characteristics of good customers

Communicates needs and expectations clearly

Unless a customer can express what they need and want, it is difficult to provide the right product or service and have a satisfied customer at the end of the transaction. 

Has high integrity

Honesty is at the core of every successful business relationship. Customer dishonesty takes two forms, one where the customer tries to “get one past you,” for example using a tool for a job and then returning it for credit while claiming it either was not used or did not work. The other customer dishonesty is more insidious, where they are unhappy with a product or service but don’t want to say so. Those customers will eventually stop frequenting your business and you will wonder why as they always said they were pleased.

Willing to pay a fair price for value received

A good customer understands that you need to make a fair profit and values their time as well as yours. I, for example, am willing to pay $39.95 for a 10-minute oil change for my vehicle because I know that it would take me half a day to purchase the oil, protect the driveway with a tarp, and dispose of the used oil and clean up afterward. And that is assuming I don’t skin my knuckles or break something on the vehicle in the process. 

Willing to answer questions in a timely manner

When you may have to substitute for a product not available or find in a service business either that there are two ways to proceed or that another problem has been uncovered that needs to be addressed, a good customer replies rapidly to avoid holding up their job and others you have in queue. 

Are committed to quality

A good customer will not ask you to “cut corners,” try to get you to match lower-priced products and services of lesser quality, or ask for used parts or products and then expect you to warrant them. 

4 steps to identifying the right customer

Those characteristics tell us what a good customer is like, but not who they are. Harvard Business Review has noted that firms should undertake four steps to identify the ‘right’ customers:

Step 1 – Identify the primary customer

Identify their primary customer in terms of perspective, capabilities, and profit potential. Perspective implies that the customer fits into the vision and mission of what your business does. Capability relates to matching your company’s capabilities with the customer’s needs. The focus for profit potential is on repeat sales of the same or different products and services over a long-term timeframe.

Step 2 – Primary customer value

Understand what your primary customer values. Within the same market and industry, different primary customers may value different things: Some demand the lowest possible price, others want a dedicated service relationship, and still, others are looking for the best technology or brand, or other specific attributes. You will need to interact with customers to determine this, perhaps outside of a sales function, and on an ongoing basis. A hardware store in a community with apartment dwellers, older urban homes with a mix of elderly residents and young families in their first home, and an outlying area of small working farms may have identified the farms as their primary customers. The business owner may need to visit farms and attend agriculturally oriented meetings to build the relationships that will address this second step.

Step 3 – Allocate business resources

Allocate business resources ranging from employee training to specific items carried in inventory to meet the primary customer values identified in step two as a means of creating customer satisfaction. It is important not just to meet current customer needs, but to anticipate future needs and be ready to fulfill them. This may mean stocking up on items ahead of season or recognizing that if large amounts of wooden fencing are being ordered, customers may soon need stain or paint for that fence.

Step 4 – Interact and adapt

The fourth step is for the process to be interactive so that as customer needs change, the business is able to adapt to them. In the fence example above, asking the customer, “how do you plan to treat that fence?” would enable to know what to have in inventory when the customer is ready for it.

It is of course, possible to have more than one primary customer. In the hardware store example above, both the working farms and the management of the apartment complexes could be primary customers. Remember that the key is having a long-term relationship with the customers. Also note that within any primary customer group, there will be individual needs. If one of the working farms was a produce farm and another was an egg farm, their needs would vary from each other. That is why having an ongoing relationship with primary customers and customer groups is strategically important. Don’t just pick your wish list of customers once.  Regularly check on your industry and market so that you can continually strategize to consistently create a profitable customer portfolio. It can also be advantageous to regularly rank your customers so that you know what ratio of your client base fits the criteria for your desired client.

The concept of choosing your customers does not imply ignoring small-order customers and one-time customers.  It recommends, however, that your strategic plans focus on those primary customers who have the highest profit potential for your business.

Once you have identified who your primary customers are, you can develop a marketing plan to attract them to your business. Stay tuned for more blogs on developing a marketing plan.

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