The BizFilings blog covering business tips and trends.
6 Must-ask Questions for Defining Your Customer Base
Published on Jun 4, 2012
Learn 6 Must-ask Questions for Defining Your Customer Base at 'Time to Start Up,' the small business blog by BizFilings.
By Matthew Toren
There used to be a shop in Old Town Scottsdale, Arizona called The Belfrey. The area catered to tourists, and the shop carried bells along with a number of other souvenir items that could be picked up by Great Aunt Martha – or for Great Aunt Martha. I noticed that over the years the store carried fewer and fewer bells and more and more tchotchkes.
In my rather vivid imagination – maybe sometimes too vivid – and I picture the history of the shop something like this: The owner loved bells and collected them from all over the world. She thought it would be wonderful to have a store filled with bells for all of those other bell collectors out there. She discussed it with her friends in the bell-collector’s club and they all agreed that it was a great idea. So she ordered a variety of bells from many sources and opened the store.
During the first few weeks, her friends came and bought a bell or two. A few tourists visited the shop and bought bells, but not many. She then discovered what every businessperson needs to understand – don’t define your customer base too narrowly. In this case she thought only of her own interests and those of her close friends. Fortunately she was smart enough to expand her inventory and her potential customer base, and the shop survived for many years.
The lesson is not just to define your customer base, but really understand it. How large a market is it? Is it big enough to support your profit goals? Is your distribution plan the best way to reach them? How about your publicity plans? Ask yourself these questions before you start your business, or as you make every decision from now forward:
1. Is your base easy to define? If you’re AARP, then it’s everyone 50 and older. If you sell custom skateboards, ages 12-30 may be more like it. An ice-cream shop in Scottsdale has a customer base of anyone living or visiting the city that happens to feel like ice-cream. If you’re defining your customer base as “everyone,” then think again. Unless you know the exact characteristics of your potential customers, you will have to throw a lot of rocks to hit one.
2. Is your base growing? Are demographics working in your favor? If you’re selling baby car seats, you’d better have a good notion of how many babies will be born in your distribution area this year and five-or-more years from now. If your business needs more sales than your estimates, you may need to branch out into other baby products. If the baby base is shrinking, you may want to use the same technology and skills you’ve developed to provide products or services to other types of customers.
3. Do you have multiple bases? The convertible VW beetle may appeal to college-age drivers as well as baby boomers who remember the original from the 60’s & 70’s. What do you need to do to reach both groups?
4. Are you too narrow with your definition? If you’re selling tents, people who enjoy outdoor activities may buy them, or parents who want to let their children sleep in the back yard, or survivalists who worry that they will have to live in the open when the civilized world ends. You may be limiting your product or service’s sales potential by not tapping into every potential customer base.
5. Is your customer base limited? If you’re selling a product that most customers will buy or use once, is the base large enough to enable you to continue making that first sale to more and more people? If not, what else can you sell them now that you’ve gotten their attention?
6. Is your customer base flexible? Like the woman who owned The Belfrey, can you adjust your products or services so that you can reach more customers if you need to?
Once you start thinking about every business decision in terms of how it will affect your customer base, it gets easier to figure out how to grow sales. After all, the foundation of your business is your customers. Without them you might be just a bell collector.
Matthew Toren is a serial entrepreneur, mentor, investor and co-founder of YoungEntrepreneur.com. He is co-author, with his brother Adam, of the award winning books, Kidpreneurs and Small Business, BIG Vision: Lessons on How to Dominate Your Market from Self-Made Entrepreneurs Who Did it Right. Their latest project is a free classified ads network called: iSell.com.