Now more than ever, it is critical to make sure that we are focused on profitability. Many companies are lured into thinking that the right customers are defined as “anyone with money.” This is a fatal mistake. We all know that it is not possible to be all things to all people—it’s not realistic and it’s certainly not profitable.
Targeting is one tool that allows you to keep your eye on profitability both with your existing customers and with potential ones.
There are 2 reasons why targeting is a live-or-die proposition during challenging economic times:
1. It is the profitable customers who will sustain you and build your business. You must understand the make-up of your profitable customers so you can determine the profile of the new customers you should acquire.
Acquisition of new clients is expensive enough; during rough times you can’t afford to acquire new clients that will drain your profitability. Nailing down the exact type of customer who infuses profit into your business is the first step to using your marketing dollars wisely.
Here’s a great way to help you understand the profitability of your customers according to Michael Walsh, President, Kaizen Consulting Services:
Sort your customer base by Gross Sales (highest to lowest) and then create another sort by Gross Profit.
Now take your Gross Sales sort and divide it into 5 equal groups or quintiles. To know what a quintile is equal to, take your total Gross Sales and divide it by 5.
Break out your Gross Profit sort into quintiles too.
Study the customers in the 1st, 2nd, and 3rd quintiles on both sorts.
Are they the same customers for both Gross Profit and Gross Sales?
What kind of effort goes into supporting a profitable customer versus an unprofitable one?
What’s the profile of profitable clients? What industry are they in and what size are they? What products do they buy? Is there a common decision-making process? Do you see a common thread across the group on how they buy?
The results of this analysis will give you the tools you need to determine who your best potential new customers will be. As an added bonus, you’ll know who your most profitable current customers are--strengthening your relationship with them is key to sustained growth from both the sales transacted with them and with the people they know, i.e., referrals.
2. You’ve got to speak the language of potential customers and show them that you understand their business if you’re going to even have a chance of engaging with them. Now is the time to focus on the relevancy of your message. In the past, businesses spent their advertising budgets trying to buy reach. “Hit them over and over” . . . that was the name of the game. The rules have changed. Americans have gotten really good at tuning out unwanted messages and our kids are even better. Now your message has to be right on target with what your prospect is interested in seeing, hearing, or reading. You have to spend considerable time, learning about the market and crafting a message that will break through that wall of distractions:
Don’t focus on mass mailings. Execute smaller ones that hone in on a specific segment or niche that you have determined to be profitable, using the steps shown above.
Craft your message so they can’t miss the fact that you’re spending extra effort to market specifically to them . . . almost like a segment of one. Study after study shows that your response rates will be far higher than industry averages when you narrowly focus.
Tip: Even though you target your efforts and tailor your message to the extreme, you can’t rely on one touchpoint to earn a response from a prospective customer. Plan on at least 6 touchpoints (combination of direct mail, PR, telephone, etc.) to get their attention.
In short, the time you take to determine what your target customers look like and to create the message that will appeal to them will have a direct and positive impact to your bottom line.
Michelle Lanter Smith is Chief Executive Officer of Hi-Impact Marketing & Sales Solutions, Inc.ing & Sales Solutions, Inc.
