24 March 2020
What is an ideal customer?
All businesses experience transactions with a customer that fits perfectly with their business model resulting in a fairly (within reason) straight forward process and ends in a profitable transaction.
It would be typical for those involved to say "gosh, wish we had more customers like that."
Which leads to the question "why aren't we looking for more customers like that?"
You can't get every customer in the market, you should focus on the ones that are best for your business.
Possibly because you have never analyzed your current customers and come-up with a profile that describes your ideal customer.
Trouble is, many organisations are so busy coping with the difficult customers, they sometimes overlook the best customers or don't have enough time to truly appreciate them.
An anecdote to illustrate the point
Years ago (and I do mean years) I worked in an entry level role in my father's business - an advertising agency of some 40 to 50 employees.
Typical of most businesses (particularly advertising agencies) the agency had many clients but 3 or 4 anchor clients that comprised 80% of revenue. The rest were 'rats and mice".
Some of the middle sized clients seemed to dominate the business. They were demanding, created daily dramas and consumed many of the agencies' staff doing their work and keeping them happy. Often the Account Service team were summoned to crisis meetings and routinely threatened with "smarten-up, or we will take our business elsewhere."
I assumed that all this drama meant these clients were the most important ones.
Actually, it was revealed to me that the largest client (and most profitable) was one of the easiest to service. Their work quietly ticked away in the background.
They were an iconic brand, a manufacturer of a broad range of household goods. They were professional, organized, focused, and thoroughly pleasant.
Importantly, they generated the most billings, were by far the most profitable, appreciated the great creative work and paid on time.
The lack of drama was mistaken by me to mean they weren't as important.
I always wondered why Dad regularly took them to lunch and rarely came back to work (sober). Dad was a classic agency principal in the "Mad Man" mold. We called him "Sir Lunch-a-Lot."
The ideal customer - a definition
An ideal customer is a customer that would obtain high value from your offering, and in return delivers to you high profitability.
In the B2B context, an ideal customer is an organisation or company – not a person.
Organizations often draft an “Ideal Customer Profile” to define their ideal customer and then staple it their sales reps' foreheads.
Ideal customer profiles will change over time as your business grows and evolves.
Businesses often deal with more than one market segment and each may need a modified ideal customer definition.
The most basic definition is "a profitable customer", but what makes them profitable?
Usually it is because they fit well with the culture and capabilities of the selling organisation and are reasonable.
Culture is a big topic in business and for the sake of brevity we won't fully discuss in this article. Suffice to say, organisations attempting to do business with each other that have vastly different cultures will inevitably clash. As a simple example, very large organisations don't play well with small organisations and for that reason they avoid them.
Big businesses normally have long winded and refined processes that small organisations struggle to cope with creating additional headaches for both. Small organisations are also very cash flow management focused and find it difficult to cope with rigid and often extended payment cycles of large organisations.
Being told "Your invoice has missed this pay run and will be included in next month's pay run" is the sort of statement that can cause the small business operator considerable pain (and a positive reading on their bullshit detector). However, another small business would understand that pain and if possible make an accommodation.
Mismatch in size can be a problem however culture embraces other attributes like ethnicity, private enterprise attempting to do business with Government, doing business with owner-operators (who are spending their own money), and simply differences in the style of doing business.
Defence contracting is a very good example of potential mismatch. Defence procurement has a very distinct and inflexible way of doing business, demanding high compliance, and has a very definite way of doing business. Gearing-up to become a Defence supplier requires jumping through many expensive hoops.
This is very important. If you are not geared-up to handle a customer's specific needs and are operating outside of your comfort zone, invariably the relationship will be strained. This observation is particularly true for the solution selling firm where straying too far from core capabilities and domain experience has the added risk of a project failure or selling at a loss.
This concept is discussed in great detail here what cycling teaches you about business.
Unreasonableness causes chaos, chaos soaks-up people's time, and time is money.
Unreasonable organisations are those that exhibit these types of characteristics...
- Treat suppliers as subservient
- Are overly demanding always expecting high performance at short notice, expecting you to compensate for their poor planning.
- Aren't happy unless they feel they have won and you have lost; attempting to make every post a winning post extracting extra value
- Constantly operate to a high level of drama that requires additional time to service their needs
- Constantly request additional services but then object when you charge for it insisting that you should have anticipated the need and built that into your original quote
- Always question every invoice or kick-up a fuss at every billing cycle.
- Never accept the first quote asking for several rounds of revisions before agreeing to proceed and then feed back in the excluded scope.
- Show no loyalty. Despite meeting their demands by going "above and beyond" they place the next order with another supplier.
- Have a history of being litigious. Some companies lawyer-up at the first sign of trouble (rather than doing the sensible thing and sitting down to nut out a solution).
While your organisation's time is taken-up running around doing their bidding, you are not looking after other customers.
Some industries thrive on conflict
The ideal customer is less likely to exhibit these poor behaviors. However, it needs to be said, for many industries (like building construction and other contracting) that's pretty much a job description for your average manager and that's just the way business is done.
They would agree more with the ideal customer being a good capability and cultural fit.
Should you be turning business away?
Business people are programmed to welcome new customers - it's in our DNA. However armed with a definition of your ideal customer you might put less effort into welcoming in a new customer that falls a long way short of being "ideal."
Price is a great tool.
As one CEO used to say to me "If we are unlucky enough to win them as a client, let's make sure they pay through the nose for giving us so some much grief."
Ideal customer definition as a tool for chasing business
Having a clear definition of the type of customer you should be chasing aids in ensuring your business development or sales team are chasing the right targets.
It also increases the probability of sales success. The opposite is true of mismatched customers; even if you haven't worked out they are not a good fit for your organisation - often they will do it for you.
You can't always have a perfect match, however you can avoid a perfect mismatch.