How to Identify the Best Customers for Your Business

It’s difficult to start a venture that gains traction with paying customers, but it’s even harder to grow beyond certain levels of sales. Why?
The authors point out that, as ventures grow, their complexity increases. Not only are there more “moving parts,” but interdependencies are more difficult to manage. The original business model must deal with new products or markets. Early leadership behaviors that worked in establishing the business are often not adequate to manage and grow it. SG&A (selling, general and administrative) costs often accelerate faster than revenues. The result: Each year thousands of promising ventures are either forced to go out of business or operate in small niches because they are unable to scale their sales activities. The authors illustrate with the example of a real company in the payroll services business. After a period of rapid growth, “BusinessProcessingCo.” saw its revenue growth stall and the SG&A burden become untenable. The company had a costly ad hoc process for evaluating opportunities, forecasting and business development initiatives. The leadership team was unable to define its core customers.
As the authors explain, different customers come with different transaction costs for the seller. This affects “upstream” capacity utilization in two respects: the product mix of the selling company (what kind of capacity is utilized) and how capacity is utilized (for example, production lines in manufacturing and the types of people and skills in a service business). The selection of customers also affects “downstream” after-sale economics and organizational requirements. The article discusses the importance of customer selection and how intelligent opportunity management can help companies scale their selling initiatives. It concludes with a general framework for helping executives analyze sales productivity and pipeline value.