A couple of years ago, I had a client in the hardware distribution business who was facing stagnation… he was puzzled because according to him, he was taking care of his customers very well.
I asked him what strategies he was using to take care of his customers.
He replied he and his sales team wine & dine, ie, entertain their top customers once per year.
Any other strategies, I asked.
We visit our top clients regularly, he said.
What else besides that, I probed further.
Nothing I could think of, was the reply.
Further probing questions followed:
1. How many salesperson in your business? Answer was 3 including himself.
2. What is your sales breakdown?
2.1 Do you get 80% of your business from 20% of your top customers?
2.2 Does 10-20 customers contribute 5-10% of your total sales each?
2.3 How much bigger are your top customers as compared to your smaller ones?
It turned out that his business came from 400-500 customers making small purchases, with the top customers purchasing 10-20 times more, but each of the top customer contribute less than 2-3% of his total sales.
After seeing these numbers, he realized:
1. Even though he had ‘top’ customers with large repeat orders, he’s in the volume game, ie, a large number of customers contributed small chunks of sales to his total turnover.
2. Visiting top customers at the expense of smaller customers did not work for him because he was not in an industry where a few customers contribute the bulk of his business. He was in fact under-servicing a ton of good customers! (His answers to 2.1 & 2.2 above was ‘no’ and ‘no’.)
3. Continuing to rely on entertaining customers was impractical from time perspective as well, because he can’t justify hiring more salespeople just to service existing customers.
4. Even the top customer did not bring in the repeat orders or larger orders as he expected, because besides the annual affair, there was no other customer retention activities in between.
5. Most important of all – he realized instead of relying solely on salespeople and himself, the process of getting bigger purchases and repeat purchases from his customers should be systematized.
The new approach he took was:
1. Making sure he & his salespeople touch base with each customer at least once every 90 days, via a combination of phone calls, greeting cards & drop by visits.
2. They started sending “freebies of the month” to their customers, these were items he obtained for FREE from strategic alliance businesses which wanted to access his client base.
3. Started a membership program to encourage repeat business, where every client, regardless of volume of purchase, can benefit from. It allowed for multiple communications throughout the year, further strengthening ties with customers.
4. He still entertain his top customers, but changed it to a dealers’ convention/annual dinner instead. (When he totaled up the entertainment expenses of the past several years, he realized he could organize a dinner inviting all his customers at the same or lower costs!)
1. He entertained his top customers and encouraged his salespeople to do the same because that is what they and everyone else in their industry “have always been doing”… it was not because the numbers showed him it was working.
2. Once he broke down the numbers and understand where his business came from vs the resources he had, he made changes that worked best based on his customers breakdown.
This is what every business should be doing. Stop doing something just because “it’s the way it has always been done”, look at what your numbers are telling you instead.
Need help making sure your numbers tell you the right story? Register NOW for our FREE Business Optimization Clinic, valued at RM750. We guarantee you will get at least 1-2 ideas you can implement immediately, even if you do not engage our services. Have a profitable week ahead!
The Familybiz Works Team
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