Download Diversified Customer Base

 Diversified Customer Base As a business owner it’s important to consistently develop new business but it’s even more important if you’re planning a future exit. By prioritizing and being strategic about your business development efforts you can target key types of customers and sectors to diversify your customer base and optimize your revenue potential. A diversified customer base presents the potential to grow revenue through different customer segments. Consequently, a diversified customer base also factors into how much growth potential your business has. Buyers are interested in acquiring businesses that not only have a strong present value but also have the potential to grow so that the future value is greater than today’s (present) value. Growth Rates When you focus on one customer or customer type you quickly saturate the revenue capacity of your customer base. Versatility in your customer ‘mix’ indicates that your company has the potential for ongoing growth which is what potential buyers need. Growth rate is another metric that’s important to potential acquirers. Maintaining growth rate at or above market rates not only increases the likelihood of closing an exit transaction but also of achieving the highest valuation for your business. To maintain a growth rate at or above market rate you’ll need to have a diversified ‘customer portfolio’ and implement innovation methodologies within your company. Customer Metrics Business development efforts means exactly that, developing new business = sales. Generally it relates to developing business outside of your regular client base. Your client base can be categorized by: 1. Location 2. Size 3. Sector (horizontal or vertical) You can also categorize your client base by percentage of revenue garnered per: 1.
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account location company size vertical and/or horizontal sector These simple metrics will help provide an ‘at a glance’ overview of your revenue and its dependencies or relationship to each specific customer type. The majority of your revenue shouldn’t be tied to a single sector or customer. Must Haves Business Development efforts build revenue from existing customers and/or generate revenue from new customers. So, to diversify your customer base you can sell: 
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existing products to a new customer base or new products to an existing or new customer base To realize any business development effort you’ll need to first identify and evaluate market opportunities. Identifying and evaluating market opportunities can only be realized if there exists a: 
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defined corporate strategy to realize key corporate objectives (including exit) close relationship between sales and marketing feedback loop to obtain customer information process for incorporating customer feedback into product enhancement or new products product champion (within the company) who is charged with evaluating market opportunities and building the supporting business case for their development Innovation As is commonly said, “innovate or die”. Implementing an ‘innovation methodology’ into your business processes not only enables growth but also fuels your brand equity. Innovation keeps your business current. Market perception is such that if you’re not changing in some way, providing something ‘new’ then you’re not relevant. Expanding the product line allows you to generate additional revenue streams from both new and existing customers. It provides a way for your business to stay current and generate new revenue streams and diversify your client base. Risk Mitigation It’s important for potential acquirers that you have a customer base spread across multiple customers and sectors. This mitigates the risk by spreading revenue across multiple sources. (Risk is also mitigated for you as a business owner.) In other words, you shouldn’t have 80% of your revenue coming from 2 customers; or 100% of your revenue from one sector. That creates a risky position for you and the potential acquirer. Diversifying your customer base also provides the means to build domain expertise across different sectors versus one area which further mitigates risk. If you’d like to learn more, please contact Wade Runge at wrunge@alliant‐advisors.com.