The importance of defining your customer

I had an experience today that drove home the importance of having a clearly defined customer. Before I share the story I'll give you the three reasons why I think this is one of the most important things a business can do, especially a startup business.

1. Having a clearly defined customer helps you understand what products and services you should be offering.


2. Having a clearly defined customer allows you to be profitable when pricing your goods or services.


3. Having a clearly defined customer allows you to feel that you're making the right decision when you turn down the wrong kind of sales.

So here's the story. I had been referred to a prospective client by a colleague whom I've known for only a short time but whom I respect a great deal. I sent this prospect an engagement letter with our fees for some startup year tax work. The prospect called me today questioning the fees and tried to get me to lower my price. During the conversation I learned a few things about the way this person views the services they would be paying for and as a result I was not inclined to lower my price. The prospect got off the phone with me and a short time later I received a call from my colleague asking why the fees were so high. We discussed the matter and I told him our position on minimum fees and my reluctance to start a new relationship with an engagement that was not profitable for our firm. The whole thing was very civil and I have an even greater respect for this person. However, I am fairly certain we will not get the work.

Now, we do have a very specific definition of our ideal client. It is a business owner in need of something more than a tax return and a financial statement. For that reason we have setup minimum fees that discourage price shoppers and those looking for a commodity tax prep service.

So here's how having our very specific definition helped me today.

1. The customers we are looking for are interested in strategic and tactical business advice, not commodity tax prep. For this reason we don't try to compete with low value tax prep services such as payroll. We also take time to setup a fairly thorough client file that assists use with quarterly and annual tax planning.


2. When we have a client who asks that we perform low value services we make sure that we charge a premium to offset the opportunity cost of not performing higher value work. We also build the extensive file setup and tax planning groundwork into our minimum fees.


3. As tough as it is to see revenue walk out the door we feel good about it because we also know that the PERSON walking out the door is not our ideal client. By not taking a less than ideal client we have the time and capacity to go find that person who is a better fit for our firm and for whom we are a better fit in their business.

Defining the ideal customer is a key exercise in setting up or redefining your business. Make sure you go to the time and trouble to decide not only who you want to do business with but who you DON'T want to do business with. It makes all the difference in the long run.

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[3 Reasons to Define Your Ideal]

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