The key question when considering the value or sale of your company is how does the BUYER look at YOUR Customer base? A Strategic perspective is more relevant than tactical perspective. So, Take a helicopter view.
Here are Six factors to consider…
Direct or Indirect?
Do you sell directly to your customers or do you sell through a third party? Direct customers are customers you own and are likely to be “stickier”. If you sell through a channel, you do not own the customers. Your business is therefore less valuable to a buyer.
Look at your customer by annual revenues. What % of your revenues are accounted for by your largest customer?
Largest Single Client – 80%, 50%, 20%?
If the answer is 80% – you have a problem if you lose this customer
If the answer is 50% – you are likely to move into losses if you lose this customer
If the answer is 20% or less, you have a more resilient (and valuable) business as you can probably weather the loss of this single customer.
What % of your revenues are accounted for by your Top 10 Customers?
Pareto’s 80:20 rule probably applies here. If this is 80% or more you either have a small customer base or a highly concentrated one. If the measure is below 50% buyers will be more comfortable that you have a sustainable business.
Recurring Customers or Recurring Revenues?
Do you have recurring revenues (e.g. support and maintenance contracts, software as a service) or recurring customers (i.e. customers whom you can demonstrate buy from you on a regular basis)
The first is contractual (1 year up to 5 years typically). The second is not contractual but a good counter argument to the absence of recurring revenues.
When you group your customers by revenues and sectors – are there any clear sector concentrations. Sectors often have different cyclical patterns.
Are your sectors in a growth phase or a retraction phase?
Are they supported by Government finance plans or likely to be adversely affected by cuts in Government spending?
Can you reference your sector experience as a marketing tool or to sell to other customers in the same sector?
Should you be looking to reduce sector concentration by seeking customers in other sectors?
Geographical Concentration/National – International
What are the geographical characteristics of your customer base?
Have you ever mapped them to find out?
What percentage of your clients are International (or could be if you offered to support them internationally)?
Do your customers have particular national concentrations? Why? Is this representative of the location of your offices or your sales staff? Could you gain more customers (and service existing customers at a lower cost) by opening another office based around a concentration of customers which may be some distance from your existing facilities.
Are your sales, operations and support staff aligned to the geographic spread of your customer base?
What can the above tell you about devising a growth strategy?
What do you sell your customers today?
What can you sell them tomorrow?
What could you sell them in the way of additional products and services?
What is your share of their wallet spend?
When considering the value of your business it is important to look at your customer base in the same way as the buyer. There are other ways to analyse customers and we may return to this topic in the future.
In the meantime, I would really like to hear your views and get your perspective.
Please add comments or contact me directly. If you like this – please RT!