Retain and grow your customer base

Getting customers is one of the most difficult aspects of running a business, so it is important to retain the ones you have, sell more to them and continually look for new ones.

This guide explains how to get to know your customers and understand your market so you can increase sales and develop your business. It explains how to use sales data, customer care systems and your databases to develop a strategy for keeping customers.

It also explains how to identify your most valuable customers, and how to maximise this value. The guide also explains how to use diversification as a means of growing your business.

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Get to know your customers

The more you know about your customers and their needs, the easier it is to sell to them and target them with appropriate offers. You can use the information you know about them to improve your business’ efficiency and customer service by tailoring product offers and providing personalised treatment.

The right information will let you build up a useful profile of your customers. This typically includes:

• who they are – the age and gender of individual consumers, or industry and business size for corporate customers
• what they think and believe, what interests them, and their opinion of you and your product
• their purchasing behaviour – which products they buy, where and when they buy them, and how they pay

Profiling your customers in this way helps you group them into different segments, each of which can be approached separately.

There are a number of ways that you can gather this information on your customers – eg using customer surveys, or if you sell online, using your website to capture information automatically. For more information, see our guide to market research and market reports.

If you have just a few important customers, it’s worth getting more detailed feedback from them. Keeping a central record of customer details and sales reduces errors and speeds up transactions, while making it easier to identify and resolve any problems.

You can use specific IT software to help you collect and analyse your data. For example, linking customer records to your accounting system makes it easier to see how profitable different customers are.

Linking customer management to buying can also improve profitability. For more details, see our guide on how to manage your customer database.

You must make sure that you meet data protection rules for any personal information on existing and potential customers that you collect, keep or use. There are also specific rules for e-commerce. See our guides on how to comply with data protection legislation and privacy and data protection in direct marketing.

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Understand your customer base and your market

Encouraging existing customers to buy from you more often is a quicker, easier and cheaper way to increase sales than attracting new customers. A good customer retention strategy is based on how well you understand your customers, your competitors, and the market you are selling in.

Your sales data will tell you a lot about your existing customers, for example:

• how often your customers buy from you
• the type of products or services they buy
• the cost of the average transaction
• the average value of their order

For more information on sales data, see our guide on how to manage your customer database.

If you collect and use customer information, you may need to register with the Information Commissioner and comply with data protection regulations. For more information on data protection, see our guide on how to comply with data protection legislation.

If you know who your competitors are, and what they are offering, you can:

• set your prices competitively
• improve your products and services
• respond to rival marketing campaigns with your own initiatives

Technology can help automate some of these processes. For example, you can set up different mailshots or emails to go to different customer segments. E-commerce software can allow you to offer discounts to particular customer groups, or send selected customers ‘e-coupons’ to use in your online store.

For more information, see our guide on how to understand your competitors.

You can also use market research to help you understand the marketplace you are operating in. See our guide on market research and market reports.

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Using your customer data to increase sales

Your customer database provides information that you can use to increase sales. For example, you could:

• offer rewards to current customers if they introduce new customers to your business
• ask customers for testimonials about your business, for use in sales and publicity material
• ask business customers about their plans and offer to work with them on their new projects
• find out who your most valuable groups of customers are so that you can target new customers in the same groups
• tell customers about new, upgraded or related products
• communicate regularly with customers through emails or newsletters – see our guide on how to reach your customers effectively

You can use your customer database to maximise Customer Lifetime Value (CLV). This is a measure of the profit you retain from selling to a customer or groups of customers, set against the cost of marketing to those customers.

You may, for example, be able to up-sell – explaining why a higher priced product would suit them better. You may also find opportunities to cross-sell other products that fit their profile. For example, customers buying paint from a builders’ merchant may also be in the market for small tools, nails and screws.

You can find a CLV calculator on the Harvard Business School (HBS) website [opens in a new window].

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What makes your customers valuable?

Analysing your customers allows you to identify those who best fit your business priorities. For example, if you are launching a new product your aim might be to build sales as quickly as possible. But if you have cashflow problems you might value customers who pay quickly.

Most businesses want customers who are as profitable as possible. Customers tend to be more profitable if they:

• buy high-margin products
• pay full price without negotiating discounts
• place a small number of large orders rather than many small orders
• do not cancel or amend orders
• pay on time, without being chased for payment
• do not require extensive after-sales service

By analysing your records you can assess how profitable each customer is. In some businesses, just a few customers are responsible for almost all the profits. Some of your largest customers might actually be among your least profitable. You may even find that there are some customers you would be better off without.

You should also try to look ahead. For example, a business customer that is expanding might become more profitable for you in the future. It’s important to anticipate changes and how they might affect different customers.

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Enhance your customers’ experiences

Looking after your customers helps build customer loyalty – if they enjoy buying from you, they are less likely to switch to a competitor. To enhance the buying process, you could:

• tailor your products and services to meet specific requirements – if a customer prefers delivery before noon, organise your delivery schedule to make sure that happens
• identify and resolve problems quickly – it is better to under-promise and over-deliver, but make sure you always live up to your promises
• keep in touch – let them know when service contracts need to be renewed or when better deals become available
• build personal relationships with key decision-makers
• consider offering preferential terms – eg a bulk discount

Technology can help you improve your service. You might be able to let customers track deliveries through your delivery company’s website. You can use your own website to provide useful information too, including downloads of customer manuals. You might also find it helpful to have a customer-only area of your site where you provide advance information – eg about new products or services.

Detailed customer databases with information about purchasing history, feedback and enquiries can also be harvested efficiently with customer relationship management (CRM) software.

It’s important that you don’t spread your resources too thinly. Make sure you give enough time to managing each of your key accounts. Ensure that staff are given adequate customer service training – they can make or break your reputation with customers. For more information, see our guide on how to manage your customer care.

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Diversify your customer base to increase sales

Understanding who your most valuable customers are helps focus your efforts to increase sales, but diversification is also important. Even if you have many customers, it’s risky if they are too similar and could be affected by a similar change in business or the market. For example, if your three largest customers are based in the US, an unfavourable change in the exchange rate could see them all drastically reduce their orders.

There are many ways you can diversify and grow your customer base – for example, you could aim to:

• widen your customer base in your existing markets – see our guide on how to increase your market share 
• use information about your competitors to take advantage of any gaps in the market- see our guide on how to understand your competitors 
• design and develop new products or services – see our section on growth through product and service development 
• form partnerships with other businesses – see our section on growth through strategic partnering
• export your products or services – see our section on growth through international trade

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CASE STUDY

Here’s how I increased profits by focusing on customers and products

After 12 years in business, the national training company Skills Training UK Ltd had growing turnover and a team that was working very hard. But profits weren’t matching up to the directors’ expectations. The management team, led by Simon Gotch, decided to reassess the business model – focusing on the company’s most profitable customers and training programmes. The strategy has paid off, with improved training quality and growing profits.

WHAT WE DID

Start with the database

“Our customer database was key to the whole process. Without easily accessible data it would have been much harder to identify our most profitable customers and courses. We already had an extensive database, but we improved it by updating and cleaning all records so we could generate a variety of management reports. This gave us, at the touch of a button, the information we needed about our customers, by individual trainer, contract and location. Keeping the information up to date was also essential, so we put in place clear maintenance and updating procedures for all staff.”

Time versus revenue

“When we looked at the facts and figures, we realised the issue wasn’t with the quality of the service, but who we were delivering to. We were applying the same amount of effort, sometimes more, to contracts that were simply not viable. We found that compared with the revenue they generated the cost of servicing such customers was very high.

“With further analysis, we identified contracts and training sectors that offered the best gross profit potential, and that’s where we decided to focus our efforts. The most obvious opportunity, and the one that offered healthy gross profit margins and great growth potential, was training speakers of other languages in English.

“We were already delivering this provision but simply did not have the management information to evaluate its contribution and assess its future prospects properly.”

Improve the service

“Concentrating on our most profitable customers and courses has enabled us to develop our offering. It freed up valuable resources that had previously been focused on less profitable customers. We now offer a service that really adds value for our customers and taps into an area of major need. We spend more time in close consultation with customers and trainees, helping them to identify their training needs and assess skill levels.

“This means we can deliver targeted training where it’s most needed and at an appropriate level. We’ve also been able to expand the range of training options, including increased emphasis on ‘blended learning’, which combines tutor-led training with remote learning. It’s helped us to foster long-term relationships with customers.”

WHAT WE’D DO DIFFERENTLY

React promptly

“When we could see turnover growth was not generating the profits it should, we could have reacted more quickly. The advantage of being an owner-managed business is that you can make decisions rapidly. If the financial information doesn’t look good, do something about it sooner rather than later.”

Consult employees

“Our employees have played a big role in improving the quality of our database and management information system. In retrospect, we should have involved our colleagues even earlier in the change process. After all, they’re the ones using the databases and management systems, so they’re in the best position to say how it can be improved. A thorough consultation process would have helped us get our systems up to scratch quicker.”

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