Most business leaders focus on the revenue line of the p&l and are targeting increased revenues month on month and year on year.
What I often find is that the business only focuses on one element of revenue growth, that which comes from new customers.
Existing customers are “taken for granted” in the revenue plan. They bought from you last month / quarter, so they will probably buy again – and we know what they will buy, probably.
Your revenues are made up of several elements:
(Existing customers x existing quantities x existing prices) + (new customers x new quantities x new prices)
Most small businesses undercharge for their goods and services, but that is for another time.
Almost every business can improve its performance by reducing customer losses or “churn” as it is known in some industries.
Often businesses with large quantities of subscribers, like TV subscription businesses or mobile phone providers have dedicated teams known externally as cancellation departments but internally as retention teams. They are often empowered to offer the subscriber a discount or special deal as long as they stay a subscriber. My broadband provider gave me a deal when I threatened to leave just a couple of months ago.
Having a dedicated team like these is better than nothing, but it is a bit like bolting the stable door after the horse has bolted. These teams don’t go into action until after the customer has complained.
If you can, it has to be better to pre-empt the complaint.
One way to do that is to implement a customer care system.
A simple system can also help with your cash flows.
More business failures are caused by lack of cash flow than anything else, but even the most successful businesses can find themselves hampered or restrained by lack of cash flow.
There are many places where cash “gets stuck” in a business but one of the most obvious is in your debtor book, when people don’t pay you on time. That’s a big part of what is called the “order to cash” cycle, and if you can make that cycle shorter it will dramatically improve your cash flow.
Payment terms are one of the most overlooked conditions when business are negotiating supply deals, but even when the terms are reasonable getting paid according to those terms can be a challenge.
Most businesses don’t help themselves.
A typical scenario is this:
Day 1: Invoice date
Day 30: Due date
Day 45: First chasing letter
Day 52: Second chasing letter
Day 60: Payment arrives
Take a step back & ask yourself why we don’t do anything until 15 days after the invoice is due?
If there is an unresolved issue, you might not learn about it until 45 days after you thought you were done! That could be enough to put you in a deep dark hole!
As an alternative, try a “customer care” call on day 6. The call is to the person who ordered the goods or services:
“I’m just calling to make sure everything was OK with your recent order, and to see if there’s anything else we can help with?”
You might get an add-on sale, or an upsell at this point, and when you’ve dealt with that you can continue:
“That’s great, thank you. Now we sent off the invoice last week – I just want to make sure that’s all ok as well? Can you tell me who has to approve it – I don’t want to miss your payment run?”
At this point, you’ve had confirmation that the invoice has arrived and there aren’t any queries on it.
You also know who has to sign it off – if it’s not the person placing the order.
Take away all the excuses – “We don’t have that invoice/ there’s an error on the invoice/ it hasn’t been approved yet / there’s something wrong with the goods or service” and you will get paid faster.
Even better, you are now getting to the customer before they complain. You have a much better chance of keeping that customer for longer.