Boom or Bust Part IV: 3 Ways to Assess Your Customer Base & Measure Performance

In the fourth and final part of our Boom or Bust series, we are focusing on assessing your sales metrics and customer base to measure performance. The tactics we’ve outlined below are designed to help you mitigate risk, grow your business and diversify your customer base.

1. Diversify Your Customer Base & Reduce Concentration Risk

Diversifying your customer base allows your business to minimize its risk for significant downturns. For example, if your business has 80%-90% of its revenue concentrated in 2-3 large customers, then your revenue, income and even cash flow could be severely impacted should a negative shock impact any of those customers or their industries. You can diversify by having your C-Level Executives as well as your Sales, Marketing and Finance teams carefully review and define, or redefine, what a “target customer” looks like, who those targets customers are in the industry and what level of sales your business is doing with them today.

You can also work on the “production line” to understand the wants and needs of your customers. For identified target customers with which minimal or no business is being done with today, your Sales and Marketing team can create targeted campaigns to drive awareness and consideration. These campaigns have the potential to add at least 5-10 new target customers allowing major customer revenue concentration to reduce your risk down towards <40%. Key Takeaway: Reduce risk in your business by diversifying your customer base. Define your “target customer” and focus efforts on adding additional customers in that sector to reduce your customer concentration.

2. Expand Revenue per Customer

Expanding your Average Revenue per Customer is a powerful way for your business to grow revenue profitability without necessarily needing to expand your infrastructure or costs to do so. You can expand your Revenue per Customer in a few ways. First, create incentive or loyalty programs to drive repeat purchases. Second, create product bundling opportunities that drive customers to purchase more on each transaction. Third, carefully review your business’s pricing strategy and market pricing position. If your company is in an under-valued position relative to competition as well as the relative value of the product or service provided, look at increasing prices.

Key Takeaway: You can expand your Average Revenue per Customer through incentive or loyalty programs, creating product bundling opportunities and reviewing your business’s pricing strategy.

3. Key Performance Indicator (KPI) Dashboard

Creating a KPI dashboard can be a proactive way to track performance and provide visibility into how you are trending against your goals. Tracking sales and customer base metrics can tell you a lot about the health of your pipeline (future business) along with how well clients are being maintained. First, start by determining what is most important to your business. In order to determine this, reflect on your goals for the company, your mission and vision along with what stage your business is currently in. These will all impact what metrics you might want to track and can help you develop proper accountability.

Often it is best to look at the KPIs on a historical 12- or 13-month trend to be able to see any themes or seasonality and providing the ability to see any leading indicators. Lastly, you can add a goal line within the KPI to show where you are trending against your target. Some possible KPIs include: number of new leads, sales funnel, close ratio, win/loss rate, type of new sales, web click throughs, marketing ROI, lifetime value of a client, churn rate, client attrition rate, and customer mix. The right KPIs will depend on your industry and focus. Once you’ve built your sales KPIs, other areas of focus can be around operations & delivery of your service or product, financial and people. Depending on the metrics, you might review these daily, weekly or monthly.

Key Takeaway: Have a KPI dashboard tailored to your business. These are a proactive way to track your performance and provide you with leading indicators around your business’s health.

We’ve shared a few of the many ways to diversify your customer base, expand customer revenue and review sales metrics in your business. It’s important to remember that your business wouldn’t be where it is today without your loyal customers and it’s critical to the success of your business that you not only find new customers, but retain your current ones.

This post was reviewed by our team of accounting and financial experts. TGG’s mission is to make business owners’ lives better through excellent financial management. We strive to provide the most up-to-date and objective information on accounting-related topics so our readers can make informed decisions based on factual content. All posts undergo a review process with at least one member of our Leadership Team to ensure accuracy.

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