Business Plan, Part 2

Customer Analysis

Your business plan needs to show the type of customers you are targeting. Do not fall into trap of wanting to sell to everybody! Instead, identify a niche market that will be willing to spend money on the products and service that you offer. Your niche market can be large or small, and this depends on what you are offering. Customers can be individuals, groups or businesses.

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Take note that business-to-business customers and transactions are different from business to customer transactions. Thus, you need to be clear whether you will be dealing with business customers, individual customers or both.

As you move online, the attributes of your usual customers will change because people from all over the world will now find your business. Some things to consider when defining your customers include their geographical location, cultural and ethnic dispensation, age, gender, economic conditions and lifestyles. If you are doing business-to-business transactions, consider the size of the companies that you are targeting, the decision-making level of the customers and their buying capacity.

Customer Value

Customer value can be defined as how much a customer is to your business in relation to profits, sales and buying capacity. According to the well-known business guru Jay Abrahams, you can only know how much time and resources to spend on a customer, when you know the combined profits that they will bring to your business. If you are a start-up, determining customer value will largely be experimental or work on approximation to determine the type of customer that you are looking for. However as you get to attract more clients you should begin to identify the most valuable. To calculate customer value:

1. Calculate the average profit for each sale i.e. the total revenues minus marketing, advertising and expenses from fulfilling a service or delivering a product, and then divide the results with the quantity of sales.

2. Next, establish the number of times a customer will buy your offerings over a period of two years or a year. Compute the profits that you are likely to make over the course of that one-year or two.

This should give a rough estimation of what the most profitable customer will look to you.

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