It is said that it is 7 times cheaper to retain and sell to an existing customer than to acquire a new one. There is a tonne of data in your existing customer base, that if you can tap into, can provide you with valuable information to help you move your business forward.
What information is in my customer base?
There is a lot of data in your existing customer base, the type of data you can extract is
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How many new customers you have acquired
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How many customers you retained
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How many customers you have lost
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The average number of transactions (products/services sold) per customer
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The average value of sale per transaction
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The average value of sale per customer
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Your top customers
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Your bottom customers
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The percentage of your total sales that your top 5-10 customers make up
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and therefore if you are heavily exposed to a handful of customers
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The movement in your top customers, are your top 5 customers the same this year as last year
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Which services and products generate the most sales
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Which customers are buying which services/products
Why analyse your customer base?
If you can gather the information above, then you can start to spot trends and make strategic decisions. Spotting positive and negative trends early can help you focus on what is working and fix what is not. For example:
If you have 50 customers, and your top 5 customers make up 70% of your sales, you are heavily exposed to those top 5 customers. They may also make up an even larger percentage of your profits. If you lost one of those customers you might go from making a profit to breakeven or a loss. Having this data will help you decide if you need to cross sell to the other 45 customers, acquire new customers or make sure those top 5 customers are looked after.
If you have acquired 20 new customers, but your retention rate has dropped from 15 customers to 10 customers, it could be a sign that you are focusing on new customers and not giving existing customers enough attention. It is more expensive to entice new customers so if this trend continues profits may start to drop.
Analysing the services or products you offer and which customers are buying each service/product gives you an insight into where you can cross sell to your existing customers. For example you might sell a machine to a customer, but notice that they haven’t purchased a maintenance contract. If you spotted that trend over your customer base, you can adjust your strategy to make sure customers know you sell maintenance contracts as well. This would be very low cost compared to advertising to a new customer to buy a machine.
You might have noticed when you go to buy a new car they will often sell you a service plan where you pay monthly for two years, ensuring you come back to them for the servicing. It costs nothing for the sales team to mention that to you when they are already selling you a car.
Forecast and take action
Once you have analysed your customer base it is time to forecast the potential results.
If you can cross sell services to 20% of your existing customers, how would this impact turnover, profits and cashflow. Can your existing team cope with that extra workload and would you need to layout any costs for new staff or equipment?
If you increase prices by 5% how does that impact turnover, profits and cashflow. Would you still be competitive. If your gross profit margin is 25%, and you increase your prices by 5%, you can afford to lose 17% of your customers and be in the same position financially.
Forecast the impact of increasing new customer acquisitions and increasing the rate you retain existing customers. A small increase in customer retention can have a big impact.
The impact a few tweaks in your customer base can be substantial when you extrapolate them over 3 – 5 years.
How can we help?
It is important to make sure the information going into your accounting system is capable of being interrogated. That is why we recommend using Xero accounting software to our clients.
We can help you segment your sales and split between the different products and services that you offer.
Extracting the data above can be tricky, time consuming and laborious. We have the ability to extract this data and present the most valuable information to you in a condensed format, allowing you to focus on the most important aspects of your customer base.
We meet with clients quarterly or monthly, to discuss the results and how trends are changing. By doing this regularly we can see what actions are having an affect.
The 3 – 5 year projections based on 1 – 2% tweaks across the examples above can be extraordinary.
If you would like to find out how we can help you, please contact us here, or call 01245 801611.
