Earn More By Serving Less

Whether you are just starting a business or planning to improve your operations, consider the option of targeting fewer customers. In starting a business, you will have a much better chance at success if you focus on a limited market, especially if you are up against giant competitors. If you want to grow your business, going after more customers is not always the correct answer.

Business nowadays is so much more competitive, complex and capital intensive. There are usually more advantages in marshalling your resources and efforts toward a lesser target. Here are some key advantages:

Improvement in efficiency. Virtually all aspects of your operations will be more efficient. You can structure facilities to fit your niche. Training your personnel would be a breeze since they only need to learn less. You may also be able to save on payroll expenses since all you may need is a less experienced worker. An example of this is the use of part-time students in fast food outlets.

The Pareto Principle helps in retaining customers. The Pareto Principle is based on the observation that in most cases, only around 20 percent of your customers account for 80 percent of the sales. If you have plenty of customers, it may improve your income if you let go of customers who are unprofitable or who consume too much of your time and resources. Using the Pareto Principle, you may also find out that only a few of your clients contribute to your entire sales. Eliminating the least profitable ones while reducing service to the borderline cases can enable you to focus more of your resources on your top clients.

You gain a clear image. Your customers will easily see that they are not out of place in your establishment. For example, if you are into clothing, the youth market would want to make sure they do not bump into their parents in your store. The design, offerings and other aspects of your operation are dictated by your market, and it is often not possible to attract one type of customer without repelling others.

Your company is viewed as the expert in your niche. If you specialize, people perceive that you are reliable in your line; after all, that is the main thing that you are doing. In fact, specialists are usually paid a premium when compared to those that serve all. Most people believe that a Jack of all trades is master of none.

The Internet vastly improves your ability to reach a scattered market. The biggest problem in marketing to a small market is how to find and deliver your message. You may be lucky to find a magazine that a large percentage of your clients patronize. However, the Internet gives you a better chance of reaching your clients. With knowledge of Internet marketing, you will find it easier to reach your market.

You’ll be less attractive to large competitors. A small market is unlikely to interest large competitors. Their much bigger overhead expense can only be recovered if the sales potential is similarly huge.

You’ll need less capital. One of the most compelling reasons to select a smaller market is that it costs less than trying to cater to everyone. You only need to have facilities and equipment for your particular customer. This saves a tremendous amount not only on the equipment but also on the area you need. You can also reduce the amount of capital tied up in inventory as you will probably need to stock on fewer items.

Check if the niche is big enough to satisfy your objectives. For all the advantages of limiting your market, there are times that this may be the wrong approach. The most critical problem is if your niche market is too small. In this case, you will not have enough sales to make the profits you want. This is why large malls and major business districts have a lot of specialized shops. They draw an extremely large number of customers from which even a small percentage would be sufficient to make the specialized shops profitable. Another serious hindrance is if your per unit costs will be too high if you are not able to spread your overhead over a large number of customers. This often happens in industries that have a lot of fixed costs like manufacturing and software development.

Despite the above advantages, there are a few situations when a different strategy is better. The market may be too small to be feasible. It is then better to sell to more. This is frequently the case in small towns or when there are only a few potential clients. In the case of too few clients, there may be no choice but to try to reach all potential customers.

In conclusion, with very few exceptions, you can make better progress by limiting your target. It may seem paradoxical but the truth is that it is indeed possible to earn more by serving less.

*Originally published by the Manila Bulletin. C-4, Sunday, November 11, 2012. Written by Ruben Anlacan, Jr. (President, BusinessCoach, Inc.) All rights reserved. May not be reproduced or copied without express written permission of the copyright holders.