3 Strategies to Diversify your Customer Base
Over-reliance on one customer, or group of customers, can leave a business vulnerable. Revenue is more likely to fluctuate because of a sudden downturn in your customer’s fortunes, and a change in the market can have a big impact on your pricing, margins, and bottom line.
Companies that work with a single client, such as aerospace suppliers to Boeing, and contractors working exclusively with tech companies like Microsoft, Google, and Amazon, often experience considerable pressure during negotiations. When a major customer knows they’re holding your company’s oxygen bottle, they often ask for, and receive, significant price concessions.
Ideally, no single client should account for more than 8-10% of your total sales.
The value of a diverse customer base
Losing a customer has far less impact on your profits.
You don’t have to challenge or accept the increasing demands of a large customer.
Your revenue will be less dependent on single volatile factors (budget changes, market fluctuations).
It’s reassuring for potential investors and buyers and will have a positive influence on your company’s valuation.
Here are 3 strategies you can employ to diversify your customer base:
1. Expand into new sectors
Consider marketing and selling your existing products and services to new customers in different segments or niches, or geographical locations outside your current operations.
For example, if you are a furnishing company operating in the hotel sector, you could target customers the leisure, office and commercial sectors.
What transferable skills and products does your business possess?
How to develop your product or service for a new sector:
Market analysis. Assess your new audience’s needs, as well as the size and potential of the market. In other words, make sure it’s going to be worth it.
Explore market entry options. Can your current marketing and outreach be developed for the new sector? Or do you need a new approach?
Choose your priorities. The furnishing firm might choose to focus on specific types of leisure space because they already have relevant experience and resources. This reduces costs and helps them explore new opportunities quickly.
2. Develop strategic partnerships and networks
Strategic partnerships can work for businesses at almost any stage of growth, and they can range from light-touch, such as co-marketing of products, to more formal arrangements, such as product licensing or co-delivery of services.
A strategic partnership can help your business develop a new product or service, gain exposure to a new target market, raise its brand profile, expand geographically and has many more advantages.
Who in your network would be open to a mutually beneficial partnership?
First, identify potential partners. The ideal collaborators offer a complimentary service and appeal to a similar type of customer. Then have a series of discussion to explore opportunities and scope the arrangements, your partnership could involve one or several of the following:
Fulfilling complimentary parts of a service:
Working together to seamlessly deliver a complete solution to customers has several advantages:
Customers don’t have the headache of coordinating multiple providers;
It often reduces the resources overheads for both parties e.g. only one project manager is required to coordinate the execution of the service;
And cuts down on the effort that often goes into customer acquisition.
If another business in your network has the resources to fulfil a part of the buying process you can’t fulfil, and you can help them out too, you’ll both win more business.
Joint marketing campaigns:
Effective marketing can be expensive, and every business wants to make the most of the money they invest in it. Acquiring leads together means you can both benefit from campaigns and collateral, and bring in more customers individually and collectively.
Instead of a customer choosing a competitor for another product or service, you can introduce them to another business in your network, and vice versa. Sharing contacts and offering complimentary discounts helps you and collaborative businesses make the most of hot leads in a specific sector.
Developing a complimentary, solution-based offering with a business operating in a relevant customer segment can help your business make an impactful, fully supported entrance into a new sector.
3. Expand geographic, demographic, or cultural reach
If your business is well established, you may be in a prime position to expand overseas to capture additional customers and gain exposure in global markets. But before you embark on this strategy, there are some specific points of preparation to consider:
Expanding geographically and culturally
Developing global reach involves due diligence, a deep understanding of your new market. It’s vital to have an intimate understanding of the communities, what they value and how they conduct business. Seek first to understand the culture and then the business proposition and associated logistics.
Build a business case to capture and assess the requirements of the new target market and validate early assumptions on its potential value and expected ROI.
If the new market is vast, and hasn’t experienced much penetration, there’s the potential for significant revenue growth if you get there first, but success will be highly dependent on your approach to customer engagement.
Expanding into a new demographic
A product or service doesn’t have to appeal to just one gender, age, or income-level. Thoroughly research the demographic you’re interested in catering to, and develop your product or services accordingly.
For just half a century, Häagen-Dazs had a consistent message: high quality, old-fashioned ice cream for sale. But that has now changed, thanks largely to millennials, the company has refreshed its brand with a revised logo, more vibrant packaging, new flavours and a global advertising campaign.
This younger generation of consumers is continuing to cause a massive shift in the market across all industries and sectors. Häagen-Dazs wanted to lose its traditional image and connect with millennials over craftsmanship and storytelling.
To stay competitive, businesses must evolve with the market, including shifts in demographic and consumer trends. Your company’s messaging plays a major role in connecting and being relevant to your customers. To appeal to new demographics:
Develop robust personas: to gain an in-depth profile of your target audience, use surveys and interviews to gain a better understanding of their needs, interests and desires. In particular, what are the problems they’re looking to solve? What motivates them to buy? And, why did they chose your product or service?
Leverage your CRM data: If your data collection includes a broad set of questions to qualify leads, you should be able to translate that information into trends and characteristics that help you better understand your customers. It can also help you to recognise surprising audiences that like your brand, and help you adapt your marketing to broaden your reach to new segments.
Showcase how your brand delivers what people want: adjust your messaging to highlight the benefits of your product that are aligned with each of your audience segments and consider which marketing channels are most relevant to each audience.
Making the most of your customer base
Your business’ value is based on its ability to appeal to as many potential customers as possible and turn a profit. Developing intelligent strategies, backed up by accurate data, will help you achieve customer diversification, which is a strong signal that your business has longevity.
WANT TO LEARN MORE
Selina Bolton is a business strategist and the founder of Seed.Partners; a mergers & acquisitions firm specialising in attracting investment and creating opportunities for small to medium-sized businesses to scale and build value at pace.
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