Customers are those people who drive your sales ;) It's very important for you and your team (if exists) to be different, creative, smart and customer oriented. Remember: no customers, no sales! Your customer is the one and only individual that can tell you how well you are doing. Not by growth charts and sales figures. But by telling you exactly how it feels to be in the position of a buying customer.
Customer base is a valuable company asset and a well formed one is the asset that helps you grow, improve and develop.Here are a few things to understand about your customer base and of interest to potential buyers:
- A quick insight into the diversity of your customer base is to run a "gross-revenue-by-customer-report-by-year." It will show you the percentage of total revenue each of your customers generate year by year.
- Customer databases contain valuable information that a potential buyer can use as a source of competitive advantage. It has potential to generate future earnings for a new owner and may add significant value.
- What industry sectors do you serve?
- What geographical area do you serve? Are your customers mostly local, regional, international?
- Pay attention to your accounts receivable and aging report because this will indicate if your customers are facing cash flow issues.
Just as a business enjoys value-drivers, it may also suffer from value-detractors, one of which is customer concentration. Many small businesses have customer concentration issues, which must be addressed in order to sell the business.
Common concerns and questions include:
- What would be the impact from the loss of a major customer?
- Is there a customer contract in place? Is it transferable when the business is sold?
- Is there an exclusivity relationship with the customer?
- Is longevity of the relationship of significance with the customer?
- Does the customer have more than one location serviced by the company or purchase multiple products? If so, this signifies that there is a co-dependency and solid relationship with this customer.
- Does the customer enjoy preferential pricing that would be hard to find elsewhere? Is it a high-volume, low-margin customer? If so, the profitability of this customer's loss may not seriously impact the company's bottom line.
- How painless is it for the customer to switch to a competitor and what could cause that to happen?
- Is there a relationship with the current owner and the customer such that the continuity of the customer under new ownership may be uncertain?
- What can be done to reduce this percentage of concentration?
A buyer's concern in this area may result in a lower sales price or a deal structure that would bridge the risk gap. For example, a certain portion of the purchase price may be held in escrow for a defined period of time in the event one or more customers are lost post-closing. Another possibility may include earn out payments based on company performance for a specified term. Of course, these deal structures place some of the risk back on the seller, which is not ideal for the seller since operational control is in the buyer’s hands.
Have a look at a very nice article by Horace Dediu "How much your customers worth?"
How to increase customer base? (based on source)
10 Tactics For Increasing Your Customer Lifetime Value and Loyalty:
- Feature Your Fans in Your Content
- Send Fans Something They Didn’t Know They Wanted
- Take Customer Advice (and Credit Them for It)
- Give Customers an Upgrade
- Be There When Customers Need You
- Help Customers Do Something They Love
- Give Customers Something Your Competitors Aren’t
- Be More Convenient than Anyone Else
- Solve a Problem for Your Customer
- Make Quality a Priority
Couple of nice charts!
And keep on asking yourself if you would buy your product from your company if you were a customer!