31 Jan Use this simple tool to find your best customers
Do you know which of your products and which of your markets is the most successful?
Even the smallest businesses sell more than one product to more than one type of customer. That means you are always splitting your limited resources to sell and serve many markets and many products.
Doesn’t make sense to focus your efforts on those that do the most for you?
In this post, I’ll walk you through the process of analyzing your products and markets. By doing this exercise for yourself, you’ll learn which do the best for you.
First, some definitions.
“Products” refers to all the products (or services) that your business sells. Looking at product categories is good enough. You don’t need to get the the sku level the first time through. After you have done this first analysis, you might want to repeat it at a more detailed level later.
If you sell the same product four different ways, it counts as four products for our analysis.
For example, let’s say you run a sandwich shop. You have a dining room for customers to sit and eat, a delivery driver, and you sell pre-made platters for meetings or parties. Customers can also walk in and buy their sandwich to-go. For this exercise, we won’t go into the types of sandwiches you sell. That is another level of detail that might make sense to look at after you have finished the first analysis.
So you have four basic products:
- Eat-in sandwiches
- Take-out sandwiches
- Delivery sandwiches
- Party platters
“Markets” refers to the groups of people who buy your products. How you divide this up depends on your business. Some ways to do this include:
- How they buy from you (at the store, online, by phone, etc.)
- What kind of buyer they are (individual, business, reseller, etc.)
- Demographic profile (men, women, young, old, type of business, size of business, etc.)
Continuing our sandwich shop example, let’s say you have these markets:
- Individual customers
- Local businesses
The Product-Market Grid
The tool we will use to find the product-market combinations that perform the best is the product-market grid. “Product-market grid” is fancy business-speak for a table of all the combinations of your products and markets.
A blank grid template looks like this.
To make your product-market grid, open up a new spreadsheet or draw a table on a piece of paper. Then, list each of your markets at the top of each column and each of your products at the start of each row.
If we keep going with our sandwich shop example, the grid would look like this:
Each of the cells in your grid represent your sales of each product to each market.
What goes in the cells?
Within each cell, you will put the metrics that best tell you how well the product is doing. Most often, this would include:
You could also include other metrics if they are important to how you measure the performance of your business.
Filling that information in for each of the cells in the grid gives us this:
Of course, you will need to know basic things from your financials to do this analysis. If you find you can’t get the information you need to complete the grid, it’s time to make some changes to how you keep track of sales. A talk with your accountant or an advisor is a good place to start.
Trying to run your business without good data on how it is performing is like trying to drive on a dark night without headlights. It might work for a while, but sooner or later you are going to crash.
How to read the grid
Once you have filled in the grid, it’s time to start looking for interesting things. You’ll quickly see that most of your sales or profits are coming from a small group of your product-market combinations. You’ll probably also see that some markets and/or products are costing you money.
In our example grid, you can see that selling platters to local businesses is very profitable for your business. Also, we can see that delivery to individual customers barely covers its cost.
Now that you are armed with some new insight about your business, it’s time to make some decisions.
Putting it into action
Did you find product-market combinations that are losing money? Just not as profitable as you would like? Ask yourself these questions:
- Should I stop selling that product to that market?
- Can I increase the price to improve profitability?
- Can I decrease costs to improve profitability?
Our example sandwich shop might want to add a delivery charge or outsource delivery to increase profitability.
When you find product-market combinations that are most successful, ask yourself:
- How can I find more customers like that who also want to buy that product?
- How can I move my other customers into that product-market combination?
Arming yourself with good information about your business is the critical first step to making your business better. The product-market grid is a powerful tool to see:
- Who your best customers are
- What your best performing products are
- Where to focus your sales to increase revenue, volume, or profitability
The investment of a few hours of your time to complete this exercise could mean thousands in additional profits to your business.
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