Your revenue comes from your customers – not your products, or your services – the customers who are prepared to pay for your offerings. When we start new businesses we tend to get our offer ready, then release it onto the market – knowing that customers will come and be wowed by our offering. The customer portfolio is the your resulting base of customers.
That customer base then determines your level of future growth (through advocacy), your cost structure and your revenue streams.
These three rules will help ensure you establish a profitable customer portfolio from the get-go..!
One: The stage of adoption are your customers in
The Adoption of Innovation Curve. Sometimes referred to as the “diffusion of innovations” was developed by Everett Rogers in the 1960’s, the language of his discovery has become commonplace today. Rogers described the Innovators (about 2.5% of the adopting population) that are the first ones that love to take up something new.
Then the Early Adopters (approximately the next 13.5%), as soon as the Innovators have trialled the new service or product, then these customers are ready to buy. Then comes the Early and Late Majority, followed by the Laggards (who typically represent 16% of the population.
We have all heard these terms before, so why is it a need to know..?
The Adoption of Innovation tells us who buys, and who needs to be sold to.
If you are an entrepreneur that truly has a new and innovative offering, your challenge is to find the innovators. Once you find them, they will buy. It is in their nature, they do not need to be sold.
Once you have a few innovators on board, then you use their stories to capture the attention of Early Adopters (who also buy).
If your offering though is not a true innovation, but perhaps an improved offering for the majority, then you will need to develop a customer strategy and sales tactics that will persuade your target customers of your value proposition for them.
The first rule entrepreneurs need to know to build a profitable customer portfolio.
Know what stage of customer adoption your offering is in.
Two: Know your awesome customer
Not all customers are equal – so do not go out there and indiscriminately acquire customers. If you do, you will probably end up with a customer portfolio with low levels of profitability. One that has some profitable customers and others not so, some may be neutral value to you, others may cost you.
Most established businesses have a customer portfolio that might have up to 60-80% of customers that are adding value. Consequently, 40-20% of customers are made up of low value, or neutral, or even ‘value destroyers’. These lower value customers can be hidden in the fray of day-to-day activity. They will be more demanding, price sensitive (always asking for discounts, or negotiating price). And often hidden within the customer portfolio as many businesses do not understand the true cost to serve these customers.
Rule two, entrepreneurs need to know to build a profitable customer portfolio. Know and define your awesome customer. The one that responds to the value you are offering. and will reciprocate by returning value to you.
Know that awesome customer and build your customer portfolio with those customers.
Three: It’s an iterative process
The development of the optimal customer portfolio is an iterative process. That means we cannot sit back and watch the customer base grow and feel good about the growing numbers. We need to be proactive in how we build the customer portfolio. This means that we test, trial, watch, learn to actively fine tune the customers we acquire.
Rule three: Watching and listening to how customers gain value from our offerings will provide insights that will help with a clearer focus on who to acquire and how to onboard these customers.
Most start-ups focus on revenue and the acquisition of customers as a priority. Furthermore, many do not put the effort into the early stages about who these customers are and the value they may represent. Consequently, too many assumptions early on can leave you with a problem within your customer portfolio.
The aim is the create a profitable customer portfolio that represents the optimal exchange of two-way value between you and your customers. Apply these three rules to ensure profitable customers.
Learn more about the Profit by Design book here.