Ignorance Is EXPENSIVE

A construction company complained that while revenues were up over 40%, their profits hadn’t grown much at all.  When asked who their ideal customer is, they began talking about all of the locations they’d done work.  Their answer was all the information I needed to know why profits hadn’t grown as quickly as their revenues.

Their response told me that they didn’t have a clear idea of who their ideal customer is, which means that they were taking any business that came their way instead of using targeted marketing to attract more of the most profitable customers they have.

Another construction company was traveling over two hours to bid work in a smaller, more price conscious community.  They got the work and wondered why they weren’t making money.

Unfortunately this lack of clarity (this ignorance) about who the ideal customer is, permeates business, not just the construction industry.  The question is “How expensive is it?”

The results these two construction companies experienced are typical of companies that haven’t profiled their ideal customers.  Investments are made in additional infrastructure to handle the additional sales volume, but little, if any, profit is generated from these additional investments.

To make matters worse, any slow down in revenues causes them to take on work at even lower prices to help support the additional infrastructure.  You can see it, can’t you?  That downward spiral?  The eddy in the stream that is sucking the life out of the business?

Let’s contrast these results with a company at the other end of the spectrum, Apple.  Apple’s philosophy is that they’re producing products that they enjoy using, knowing that those products will appeal to others like them.  That’s their ideal customer.  That’s their brand focus.  That’s their target market.  That’s to whom their marketing is directed.

Prior to 2004, when it’s focus became clear, Apple’s earnings ranged from a loss to 10 cents a share.  Since then it’s profits have grown from the paltry 10 cents a share to $27.68 per share in 2011.

Similarly, the only time in Toyota’s history that it didn’t enjoy profit growth is when they decided that they wanted to overtake GM as the #1 automobile producer.  Losing sight of their ideal customer and what those customers valued cost them roughly $1 billion in profit as their earnings per share dropped from $12.93 to a $2.94 loss.

As you can see, neither the size of the company nor the industry matter, when you lose sight of who your ideal customer is, the consequences are huge.

If your business is experiencing any of the results outlined above, step back and ask yourself  “Who’s my ideal customer?”  If you find yourself struggling to answer that question or even if there’s only a slight hesitation before you begin to respond, you’ve lost sight of your ideal customer.  It’s time to create that customer profile and explore how well your offerings are serving them.

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2 Responses

  1. Tom Norman

    It seems what you are saying is focus on what is making money for you and validate that relationship: i.e. uyse it to determine your ideal customer. And through this expand your marketing and service activity… since this is the reality that your bottom line in the market place is telling you.

    This is distinct from forming yourself in some category that is in place external to the reality you experience.

    At the same time where you are generating activity but not profit, raise your profit margins or see what is missing that you are not profiting. Add that and let the price margins be earned in the context of your ideal customer being drawn to the table.

    Where the sales don’t come, then leave that business to others to occupy themselves; while you then occupy yourself with the ones who validate you.

    So then if the industry standard is a certain commission, I am not bound by that.

    First, if I am profiting at the level, validate the relationship and cultivate it because it is the profit source. If I am not profiting at this level of commission be prepared to work harder, smarter, longer, with greater focus and validate your asking for the higher commission.

    And also consider prudence vs. greed: drop your commission if you can afford it to tailor your service to its potential… so that you keep the other side our your ideal customer in focus: customer satisfaction… and communicate that to the identified market place.

    The key then is adjusting prices or commissions up or down to service your ideal customer, expand them and secure their allegiance and discourage competition.

    • Dale Furtwengler

      Tom, I never suggest that people work harder or longer. As you said, I do encourage them to focus on the markets in which they are doing a superior job of serving their customers to capitalize on the satisfaction these customers demonstrate through the higher prices they’re willing to pay.

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