The more cash a few customers give to your business in exchange for your products or services, the more revenue you have, and possibly the more positive cash flow you also have. The alternative is to have a lot of customers give your business some money (no matter how small) still in exchange for your products or services. Either way, or better still a combination of some customers that give your business a lot of money and many customers that give smaller amounts, you will find your business in a position to generate sufficient revenue to stay afloat and possibly make profit.
In fact, I believe that every young or new entrepreneur should calculate their breakeven point on the basis of the number of customers, and volume of business (i.e. amount of cash they receive from those customers). You need a minimum number of customers giving you a minimum amount of money within a particular time period to achieve break even. It is not an academic thing; it is about finding customers and getting them to part with money, for your products and services. That is all.
The other point many new and young entrepreneurs miss is that even though there is only one way for the business to receive revenue, there are 1001 ways for it to expend (or lose) what it has received. Every procurement transaction in the business whether it be from staff salaries (remember you actually procured the services of the staff?) to your own transportation costs, and from office space rent to the purchase of stationary, you are spending money. The odds are not in your favour so careful planning and management is required and that is the essence of cash flow analysis, planning and management.
Understanding this very basic and profound principle of entrepreneurship and management must lead every business manager to focus with laser jet intensity on one issue above all others – customer.
My advice is that every entrepreneur and business manager (especially the new and younger ones) must focus on “making every client or customer a long-term partner to your business.” In fact, this is the corporate mission statement of the company I founded and I lead today. When my team members ask me about what is right and wrong decision and conduct in the business, my response is usually simple: - any decision or action that does not help us transform an individual or organisation we accept as a client into a long-term partner is wrong! The decisions and actions that do are right!
Now, I do not believe that everyone or every organisation you encounter, as an entrepreneur, is one you should seek to make a long-term partner. Some you should reject for ethical and similar reasons. The simple two-dimension matrix shown below could help other entrepreneurs to figure out how to deal with this all-important task of transforming clients into long-term partners, which is the ultimate goal in marketing, as far as I am concerned.
In esoteric language, it would be described as loyal customers. However, this goes beyond a customer being loyal, it is about them becoming your undeclared partners. They defend your business, products and services when you cannot be there, they market for you at no direct cost, they do so many other things that sometimes you cannot do for yourself as a business, because no one will believe or accept such coming from you.
•Value created for your bBusiness
•High value (net worth) customers
•New (discoveries) customers
•Repeat but lower value customers
•Customer-to-Business Partner Matrix ©
The main point is that all entrepreneurs and business managers should seek to transform or convert all forms of customers into long-term business partners. You need as many of your customers as possible in the green box – as long-term partners.
The blue box is where you have customers that do not contribute a lot of value to your business but are committed over time to its wellbeing and survival.
The amber box is where you have customers that could contribute a lot of value through one transaction alone but have not demonstrated they could keep this up over time for the simple reason that they are “beautiful brides” and everyone wants them, so they can take their money anywhere without really losing much.
Uzo Nduka, CEO, Domino Information Company Limited