Category Archives: Customers

What are your business cycles?

A way to understand and benchmark your business is to identify the cycles within the business.

The sales cycle is the period from the initial contact through to the point at which a sale is made.

The delivery cycle is the period from the receipt of the order or the signing of the contract through to the completion of the delivery of the product or service.

The production cycle is a sub-cycle of the delivery cycle and is the period from receipt of the order through to the completion of the product (but not its delivery or installation)

The order to cash cycle is the delivery cycle plus the credit terms taken (not offered) by your customer.

You can extend this thinking to almost any part of the business but the key point to recognise is that the longer the cycle the more resources are required to complete the cycle.

At its very simplest level if the order to cash cycle is (for example) 120 days that means you have to fund the operating costs of the business for 120 days.

Add to that a sales cycle of (say) 90 days and you have to fund the business for 210 days or the best part of a year. Ouch!

In practice, of course, in an established business the cycles overlap so that the cash from last month’s orders is available to fund this month’s overheads, so it doesn’t look anywhere near as bad.

However, if you can shorten the cycles in your business you’ll reduce the amount of cash tied up in the business and take the pressure off working capital.

Check by talking to other businesses in your sector to see if their cycles are similar to yours. You might find their experience is different – so you can implement improvements in your business.

If you really do have an extended production cycle, think about asking for partial payment as the work is being done rather than waiting until everything is complete and delivered.

 

Exceed your customer’s needs

I often find my clients are limiting their business options at the outset by telling themselves and everyone else “we’re only a small company” with the implication “we can’t do that…because we are only a small company.”

Ask the alternative question “what would a world class company do?” followed by “how can we do that?” and you may well be surprised by the results. Size is not everything!

There will be times when you are limited because you don’t have the resources, but more often than not it is a question of mindset, not resourcing.

Every giant corporation and every industry leader was once a small company, but they didn’t let themselves be bound by their size, so why should you?

It is not just about copying from world-class if you really want to stand out. It is about best meeting or exceeding the needs of your customers – and if it is important to your customer, it should be the most important thing to you.

In several sectors a handful of companies have completely disrupted existing markets by applying technology to change the way things have always been done. You could choose Uber for disrupting the travel industry, or AirBnB for the hospitality sector.

Both companies identified a that the incumbent providers (even those that were world class) fell short of customer needs and built businesses around meeting those needs.

They didn’t copy what the existing world-class providers were doing and they didn’t limit themselves by their size.

The fundamental question that you should be always asking is

“What do my customers want, and how can we best meet that need?”

Not every business can be an AirBnB or an Uber, but every business can do a better job meeting its customers’ needs.

 

Don’t be a day late and a dollar short

 

There is s a great American saying used to describe a failure. It’s often used to describe how an individual performs, as in “He is a day late and a dollar short”.

The English equivalent is “Too little, too late”

The business lesson is directly connected to expectations.

If your customer expects a delivery on Wednesday and you don’t deliver until Thursday, in your customers’ eyes you are a day late, even if you always planned to deliver on Thursday.

In the same way, if your customer thinks that you will do more than you think you are going to do you will come up a dollar short!

I am sure you don’t set out to be a day late and a dollar short – who would?

You can avoid that by making sure you have a solid grasp of your customer expectations at the start of the relationship. If it is a complex service or project, map out the steps of the project and assign responsibilities. Often, with complex projects, you as the supplier cannot make progress until the customer has completed a task, but if that dependency is not clearly stated guess who will get the blame!

If it is a customer complaint, time is of the essence. If you can get back to your customer quickly – even if it is just to say “we’re working on it” – that can alleviate some of the perception.

The other side of the coin is how you can turn your customers into raving fans.

Under promise and over deliver is a frequently heard truism, but the over-delivery has to be managed. There’s no point over delivering if what you are adding are things the customer does not want / need or value.

The crucial steps are to understand (and manage) your customers’ expectations, work out what is really important to them and then over-deliver in that area.

 

Perception and reality

Most businesses think they provide good service to their customers and they are probably right, if they are still customers.

Some time ago, I was managing a large distribution business. Every year we commissioned a “Customer Satisfaction Survey” from a third party. It was a report that we debated at some length, to see if there were opportunities to improve our services.

The problem with that report (and I am sure many similar exercises) was that the answers didn’t change very much from year to year. We were asking the people who were using our services, and the very fact that they kept coming back to buy again told us we were providing adequate service – and the report reinforced that view.

What we really needed to do was to ask the people who didn’t buy from us, or even better the customers who no longer bought from us but instead had found an alternative supplier. What made them change?

You and your customers may think you provide good services. What do the people who tried you and went elsewhere think?

Marketing & Sales people will tell you that you can much more easily reactivate a past customer than find a new one; you can do much more to improve your services by asking a dissatisfied customer what you did wrong – and in the process perhaps that dissatisfied customer will give you another chance.

What have you got to lose by asking?

 

Who looks after your customers?

 

Some time ago I was collecting my wife from the station one evening.

It was cold and windy, and when I entered the station lobby it was no warmer than being outside as one of the doors was open.

I stood there for a few minutes, trying to see if her train had arrived, and then realized I was early and would have to wait – so I closed the door.

As soon as I did so, one of the security guards leaped up and propped it open again, telling me “We have to leave it open, there are no handles on the outside – if the door is closed no-one can get in”

Many of you will know that Reading station and the surrounding track have just undergone a £400m investment program – the whole station is practically new, as are the doors in question!

You can understand, I suppose, that the detail of a mechanism to allow passengers to enter when the doors are closed was overlooked in the initial plans, or even during the final construction. What is difficult to understand is that the station and these doors have been operational for several months without remedial work.

Passengers have not been seriously inconvenienced as the doors are always open, but on the evening I was there three ticket office staff and two security guards were suffering the cold weather coming through the open doors.

If the front-line staff are inconvenienced in this way, how are they likely to give their best service? Why hasn’t this been fixed? I am sure a handle could be fitted reasonably quickly!

Are the management not listening to their staff, or is there no communication system? Are the staff unwilling or unable to raise this issue?

In your business, if you want to give the best service, you need to get the best from your front-line staff – which means you need to take the best possible care of them. Are you doing that?

 

Perception is reality

In almost any walk of life, it does not matter what you think. What matters is what the observer perceives.

Gustave Flaubert said “There is no truth. There is only perception”

If you are in any doubt just ask any politician!

If your team think you are likely to react badly to certain types of news or information, they will hesitate to share it. You’ll be left in the dark, and perhaps get a nasty surprise when it is too late to do anything about it.

If your suppliers think you don’t value their efforts, they are less likely to help out when you need that order expedited.

If your customers think you don’t care about them – the reality is the perception – you don’t care – or at least not enough.

I’m reminded of the Robert Burns poem, To a Louse, part of which is

And would some Power give us the gift
To see ourselves as others see us!
It would from many a blunder free us

You can avoid a lot of problems by asking how am I/ we being perceived, through employee surveys and customer surveys.

You can gain even more insight from exit interviews with staff who are leaving, and from former customers who are now buying elsewhere.

Ask your suppliers how they rate you as a customer.

Just asking the questions is a really good start. People love to be asked for their opinion, and making the effort to give them the opportunity will be beneficial.

Structured questioning, where you aim to uncover opinion in particular areas will sometimes provide greater knowledge but always allow for free-format comments.

You may think your business is the best thing since sliced bread, but what you think does not matter.

All that matters is what others think.

 

Keeping your customer for longer

Most business leaders focus on the revenue line of the p&l and  are targeting increased revenues month on month and year on year.

What I often find is that the business only focuses on one element of revenue growth, that which comes from new customers.

Existing customers are “taken for granted” in the revenue plan. They bought from you last month / quarter, so they will probably buy again – and we know what they will buy, probably.

Your revenues are made up of several elements:

(Existing customers x existing quantities x existing prices) + (new customers x new quantities x new prices)

Most small businesses undercharge for their goods and services, but that is for another time.

Almost every business can improve its performance by reducing customer losses or “churn” as it is known in some industries.

Often businesses with large quantities of subscribers, like TV subscription businesses or mobile phone providers have dedicated teams known externally as cancellation departments but internally as retention teams. They are often empowered to offer the subscriber a discount or special deal as long as they stay a subscriber. My broadband provider gave me a deal when I threatened to leave just a couple of months ago.

Having a dedicated team like these is better than nothing, but it is a bit like bolting the stable door after the horse has bolted. These teams don’t go into action until after the customer has complained.

If you can, it has to be better to pre-empt the complaint.

One way to do that is to implement a customer care system.

A simple system can also help with your cash flows.

More business failures are caused by lack of cash flow than anything else, but even the most successful businesses can find themselves hampered or restrained by lack of cash flow.

There are many places where cash “gets stuck” in a business but one of the most obvious is in your debtor book, when people don’t pay you on time. That’s a big part of what is called the “order to cash” cycle, and if you can make that cycle shorter it will dramatically improve your cash flow.

Payment terms are one of the most overlooked conditions when business are negotiating supply deals, but even when the terms are reasonable getting paid according to those terms can be a challenge.

Most businesses don’t help themselves.

A typical scenario is this:

Day 1: Invoice date
Day 30: Due date
Day 45: First chasing letter
Day 52: Second chasing letter
Day 60: Payment arrives

Take a step back & ask yourself why we don’t do anything until 15 days after the invoice is due?

If there is an unresolved issue, you might not learn about it until 45 days after you thought you were done! That could be enough to put you in a deep dark hole!

As an alternative, try a “customer care” call on day 6. The call is to the person who ordered the goods or services:

“I’m just calling to make sure everything was OK with your recent order, and to see if there’s anything else we can help with?”

You might get an add-on sale, or an upsell at this point, and when you’ve dealt with that you can continue:

“That’s great, thank you. Now we sent off the invoice last week – I just want to make sure that’s all ok as well? Can you tell me who has to approve it – I don’t want to miss your payment run?”

At this point, you’ve had confirmation that the invoice has arrived and there aren’t any queries on it.

You also know who has to sign it off – if it’s not the person placing the order.

Take away all the excuses – “We don’t have that invoice/ there’s an error on the invoice/ it hasn’t been approved yet / there’s something wrong with the goods or service” and you will get paid faster.

Even better, you are now getting to the customer before they complain. You have a much better chance of keeping that customer for longer.

 

The right kind of customer?

In many businesses there no real selection or filtering of customers.

The focus of the business is on attracting prospects through marketing, and then converting those prospects into customers through the sales process.

Good marketing will (of course) be targeted or aimed at a particular customer type or group (and if your marketing is not focused, it will be less effective) but that doesn’t mean you won’t have prospects that don’t meet the criteria for that target group.

Some of those “wrong” prospects will become customers.

Some of those customers may be the wrong kind of customer.

Some time ago, I ran a business that operated a support desk. We had some customers who were so troublesome and took so much time to support that we actually didn’t make any money from selling to them.

The Pareto rule will probably apply; 20% of your customers are either low profit or unprofitable.

Your customers will fall into one of the 4 categories:

Before you analyse your profitability by customer, you might want to draw up the profile of your ideal customer, the one you believe will fit in the top right quadrant.

In the top left quadrant, you may well find that you are doing business with an ideal customer, but not enough business to make it worth-while.  Your focus should be on increasing the business you do with that customer.

In the lower left quadrant, you can change the way you handle the low profit customers. In the business I ran, we changed the support offering – limited the amount of free telephone support we offered, and backed that up with an extensive knowledge base to facilitate self support.  You may need to change your pricing model to drive those customers away, or at least improve their profitability.  We increased delivery charges on small orders for just this reason.

In the lower right quadrant, look to automate as much as possible. If you can automate dealings with a customer, from the order through to the cash, your costs of servicing the customer for that order will be very low. You will still need to review after sales support.

The customer in the top right quadrant are your stars, the ones you want to hang on to, the ones who are the most important to your business. You need a spread of customers here – Ideally no one customer should be worth more than 20% of your business.

Retaining your star customers is about building and sustaining a relationship with them. find ways to show your appreciation for their business, listen to their needs and wants and adjust your business to meet those needs.

Try to discover why your star customer buy from you, not the competition. We had one customer who bought from us because we were on his way home, but more seriously another showed great loyalty because one of our engineers met him at his customer’s site with the part he needed, enabling him to provide fantastic service to his customer.

Compare the profile of your real star customers to the profile you drew up before you started. Use that comparison (and the reasons why your customers buy from you) to inform and adjust your marketing.

 

Keeping a customer is easier than finding a new one

I was reminded of this yesterday by discussions in an all-day meeting planning the future of the organisation.

We’re taking a new direction, investing some additional funds and resources to increase and re-shape our marketing so that we can win new business. The meeting yesterday focused on the strategy in the morning, then the tactics in the afternoon – a very productive day.

Towards the end of the day we turned to the subject of customer retention, and realised there was a possibility that some of our new activities, unless carefully communicated, could disappoint and disillusion our existing customers.

We chose to forego some of the whizzy new stuff to keep the existing customers happy. It does not mean we will not do it – just not yet – and the cost to us is minimal. There’s an opportunity cost, to be sure, but it is pretty small.

If you lose 10% of your customers in a year, you’ll need to add 11% just to stand still.

If you break down your revenues by customer, and then by order size you get a formula that looks like this:

Total Sales = Customers x Sales per Customer

Sales per Customer = No of Orders x average order value

So to grow your total sales, you can either increase your number of customers or you can increase the sales per customer.  One of those is much harder than the other!

To increase your sales per customer, you can either increase the number of orders (the frequency with which the customer shops with you) or you can increase the average order value.

So, how much of your marketing effort is devoted to your existing customers?