The missing step in every B2B customer growth strategy
Original Publish Date: Nov 15, 2020
“If you don’t know where you’re going, any road will take you there” - “Any Road” by George Harrison
The way B2B companies grow existing customers or chase new customers is archaic.
“Spray and Pray” is still a popular customer growth marketing approach in B2B settings. Obviously, this doesn’t lead to consistent or replicable results. I believe there’s a missing step in many B2B customer growth plans that can resolve this inconsistency.
One of the best ways to grow your customer base is to engage in a process of customer selection before crafting your customer growth or acquisition strategy. We need to make a conscious choice about the customers we go after. The only way to make this choice would be to sit down and review the breadth of prospective customers using multiple lenses.
I want to offer a few lenses or techniques for selecting the customers you want to grow or acquire. This list is not exhaustive but hopefully serves as a starting point in your own B2B customer selection process.
The 80/20 rule…
…on profitability
We underappreciate simple customer analysis. Before going big, it helps to understand how specific customers contribute to your overall profitability. Certain customers are more valuable than others. Irrespective of which profitability metric you choose; it’s worth building a list of customers and ranking them based on their results on that profitability metric.
It’s not always an even 80/20 split. But B2B companies normally see a distribution where a smaller base of customers is responsible for a bigger chunk of profits.
The follow-up analysis would uncover the exact reasons for the higher profitability of this smaller set of customers. Can you link it to product portfolio, specific pricing regimes, specific service level agreements, or something else? The customer growth strategy stemming from this lens would be to translate what’s working favorably for you with this 20% of customers to the remaining 80% of customers.
…on de-risking
Like profitability, you can use the 80/20 rule to identify which smaller pool of customers is responsible for the bulk of your revenue. Are you too reliant on a few customers for your revenue? Take it one step further – Who’s your riskiest customer? Is there a customer that accounts for at least 10% or more of your revenue?
This lens helps you understand if you’re at the mercy of the existence/successful performance of a smaller set of customers. If the answer is yes, a customer growth strategy here will be all about de-risking your business. Maybe even going after small wins with new customers to gain new business and gradually maximize your overall per-customer revenue and profitability.
“Move the needle”
Do you break down your customers by tiers? B2B companies sometimes see customers grouping into different buckets based on the “maximum available business”. In this scenario, your Tier-1 companies are the ones who currently offer you most of their business. Therefore, your customer growth strategy is more about relationship management with these companies.
Tier-2 companies in this situation would be the customers right at the precipice of turning into Tier-1 companies. They currently offer you a decent size of their business. Yet, for example, they probably rely on multiple vendors and you’re probably not an exclusive provider.
The customer growth strategy for these Tier-2 companies involves all the incremental efforts to push them over the hurdle to offer you their remaining possible business too. Efforts might be around reducing their hurdles in doing business with you, simplifying their overall engagement, consolidating their relationship with you. Maybe even illustrating how they can generate substantial gains in their business with the marginal change of shifting more of their available business to you.
Strategic value
Your overall company strategy should always factor into your customer growth agenda. Sadly, these two tend to exist independently of each other. Let’s assume you have a short, mid, long-term strategy in place. You have some semblance of how your business will evolve.
Ask yourself this – Who are the key customers you will have to win or hold on to effectively in that evolutionary journey?
These companies are worth considering for partnerships, exclusive arrangements, innovation incubators, and much more. Your customer growth strategy will be around selling their future success as benefitting from a closer relationship with your company.
Growth potential
Your customers also go through the whims of the economic cycles and must operate in a strategic, financially prudent manner. Understanding your customers also involves uncovering those companies (existing or new customers) that are gaining traction in their part of the business ecosystem.
Who do you see as the “rising stars”? Who’s showing faster gains in overall market share? Who’s changing the existing norms in the business models, pricing, “standard business practices”? If your company is part of a complex ecosystem; which group of customers do you see as capturing more of the end demand out there?
The customer growth strategy in this scenario would be alignment with these rising stars. Uncovering ways to support their rapid growth and figuring out your place in the ecosystem as these customers change the landscape with their growth.
Lifetime value
“Customer Lifetime Value (CLV)” – depending on the calculation – can work as a stand-in for loyalty and gauging the strength of a customer’s history generating revenue for you.
An analysis of your current base of customers can show which customers rank the best in terms of CLV. Like my thoughts on profitability from earlier, the customer growth strategy here should involve ways through which you can transfer the successful efforts that led you to generate high CLV for certain companies to others.
Segmentation
Your company likely offers multiple products that you sell into different market segments. There is clearly a cost involved in offering multiple products if each one doesn’t carry its weight by bringing in much-needed revenue and sustaining its own product revision efforts.
Compile the list of different market segments that you currently play in. Define which offerings get sold into each segment. You can even consider a traditional market share analysis for each offering by market segment.
We should focus your customer growth strategy in this scenario on your underperforming offerings in specific market segments. “Underperformance” can mean different things depending on your company’s interests. Thinking beyond market share, you can also consider investment costs, returns, future growth of the market segment. Are there market segments where you’re underperforming despite good customer reviews? This might suggest a growth strategy around reevaluating the price to value model and repositioning in the marketplace.
Geographic presence
One gap that every company wants to address as it thinks about growth (usually) is the geographic footprint. Customer growth strategies should be in lockstep when this is one of the biggest items on your company’s agenda. Certain countries might have barriers to participate like “in-country value” programs. The customer growth strategy in situations like these is often a variation of joint ventures, exclusive agreements, new investments in PP&E, etc.
Diversification
Finally, what if breaking into new markets is the main agenda on your plate? Traditional, familiar customer growth strategies from your established markets may not always be successful in this case.
A customer growth strategy in this situation involves fast learning and openness to iterations. Starting small is the key. Figure out a niche growth strategy by focusing on a subset of customers. Establish credibility and then think about expansion plans.
Your decision on the customers to go after should dictate your growth and acquisition strategies. Try using the lenses above or even uncover your own way of analyzing your existing and prospective customers.
Your choice of customers should change the growth strategy you pursue. This simple step can focus your growth strategies overnight to generate better, predictable results. It gives these strategies purpose above all.