Blog

Ignorance is expensive

September 17, 2012 by Dale Furtwengler — President, Furtwengler & Associates, P.C.

A construction company complained that while revenues were up over 40%, their profits hadn't grown much at all. When asked who their ideal customer is, they began talking about all of the locations they'd done work. Their answer was all the information I needed to know why profits hadn't grown as quickly as their revenues.

Their response told me that they didn't have a clear idea of who their ideal customer is, which means that they were taking any business that came their way instead of using targeted marketing to attract more of the most profitable customers they have.

Another construction company was traveling over two hours to bid work in a smaller, more price conscious community. They got the work and wondered why they weren't making money.

Unfortunately this lack of clarity (this ignorance) about who the ideal customer is, permeates business, not just the construction industry. The question is "How expensive is it?"

The results these two construction companies experienced are typical of companies that haven't profiled their ideal customers. Investments are made in additional infrastructure to handle the additional sales volume, but little, if any, profit is generated from these additional investments.

To make matters worse, any slow down in revenues causes them to take on work at even lower prices to help support the additional infrastructure. You can see it, can't you? That downward spiral? The eddy in the stream that is sucking the life out of the business?

Let's contrast these results with a company at the other end of the spectrum, Apple. Apple's philosophy is that they're producing products that they enjoy using, knowing that those products will appeal to others like them. That's their ideal customer. That's their brand focus. That's their target market. That's to whom their marketing is directed.

Prior to 2004, when it's focus became clear, Apple's earnings ranged from a loss to 10 cents a share. Since then it's profits have grown from the paltry 10 cents a share to $27.68 per share in 2011.

Similarly, the only time in Toyota's history that it didn't enjoy profit growth is when they decided that they wanted to overtake GM as the #1 automobile producer. Losing sight of their ideal customer and what those customers valued cost them roughly $1 billion in profit as their earnings per share dropped from $12.93 to a $2.94 loss.

As you can see, neither the size of the company nor the industry matter, when you lose sight of who your ideal customer is, the consequences are huge.

If your business is experiencing any of the results outlined above, step back and ask yourself "Who's my ideal customer?" If you find yourself struggling to answer that question or even if there's only a slight hesitation before you begin to respond, you've lost sight of your ideal customer. It's time to create that customer profile and explore how well your offerings are serving them.

About Dale Furtwengler

---

None

Connect with Dale: