Small Customers are Customers Too

Segmentation and Driving Innovation through Customers of All Sizes

As a "small customer" of one of Butler Street's providers, I recently attended a local event to learn about trends and best practices in the space. The attendees were from a variety of industries, company sizes and all use the particular tool in different ways.

There was a panel in which their largest customer shared successes they have had. I was excited to hear the panel and bring back ideas for how we could implement innovative solutions for our customers.

However, what I learned is while that company had been an early adopter, a large company with the highest volume of usage, what they were doing was very old school. They were not leveraging many of the available new benefits and their needs were very different than our needs (and many of the other event attendees).

Across multiple industries, I've seen companies introduce innovation to support the current and future needs of large companies. Their large customers have experts in a particular realm, even multiple people or teams with the experience and focus in a specific area. They likely have higher volume of buyers or users that provide input and feedback on how the solution is or isn't meeting their needs. They see the value of helping with BETA or pilot programs. There are opportunities to expand in those existing large accounts and keeping those accounts is critical to the top and bottom lines.

Why not have all large accounts?

  • The largest customers require the largest investment in the relationship

  • They have the lowest margins

  • Losing a single large account can be detrimental to the business

  • Truly Collaborative partnerships are rare; most are Cooperative; and some are Competitive (I win/You lose)

To retain and grow in large accounts, you need to understand the current overall governance, build relationships with multiple people at multiple levels, understand their strategic initiatives, the changing needs of their customers and how your solution is aligned with their goals, perform Quarterly Business Reviews, consistently measure client risk, and constantly be proving the value you are delivering. Then when a Key Decision Maker or Influencer changes (known as a Changing of the Guard®), your business will still be at risk.

The truth is that smaller customers can help drive innovation as well. How do you determine the value that each segment of customers can bring to you?

  • Key contacts in smaller organizations often have multiple responsibilities. Instead of interacting with a lower level analyst or buyer on a day-to-day basis focused on a specific task, you have the opportunity to build relationships with experienced high-level contacts - likely an owner, or a VP that is responsible for not only your solution but how it fits into the business overall. They can better articulate how your solution is impacting the value that they can deliver as well communicate industry drivers and their customers' strategic needs for the future.

  • There are more of them! Just like in building a team where the highest performing team is one that is made of varying backgrounds and experience, a group of contacts from smaller customers can provide a wider view of the road ahead.

  • There is less red tape. Small customers have fewer (or non-existent) silos and can move quickly.

  • When prioritizing initiatives, often the largest customer has more weight in process. But in meeting the needs of one customer, you'll likely miss the needs of the market as a whole.

When servicing smaller customers, efficiency is key. You cannot afford to invest the same amount of time for a customer that places a $5K order as one that spends over $1M. Do you have different offerings and strategies for this segment?

Every business is different and the ideal mix is different as well. Everyone knows that having 1 customer make up 80% of your total revenue is not … But what is the right answer? 70/30? 60/40?

Can you articulate today how many customers you have over $X revenue? How about their respective profit or contribution margin? How many small customers do you have that also have similar profit margins?

First, run a Net Promoter Score survey to identify how loyal your current customers are. Include sales level so that you can compare the NPS by revenue categories. How large is the gap? For example, if you have an NPS of 18 for small customers and a 54 for larger customers - there is a large gap in the perceived value that is being delivered. Are your current offerings and your future strategy in alignment?

Second, perform a financial segmentation to see how many customers, how much revenue, and what the respective margins are in each category. Only then can you develop the right strategies (protect, grow, expand.. or even drop) for your business. How many High Revenue High Margin accounts do you have?

Lastly, merge the NPS results with the segmentation results. Which accounts specifically do you need to protect, which are most at risk and which accounts are ripe for developing innovation opportunities?

Butler Street can help you answer these questions. With a simple list of accounts with annual revenue and profit (or contribution) margin dollars, we can put into our financial segmentation model custom to your business and illustrate the value of each customer brings. Contact us today to get yours!

#financial #segmentation #retention