Fewer customers is not necessarily a bad thing

For small business owners, the drive to build a bigger customer base can be very strong. It is important, however, to remind yourself that getting more customers is not necessarily always the best move for your business.

Every customer comes with an opportunity cost

Developing a customer base comes with a variety of costs, including the cost of marketing, invoicing and billing, the cost of running your website, all those little non-paying things that you have to do to keep your business running. Each and every customer you have takes a certain amount of time, money and effort to maintain. You should know this opportunity cost, as well as the development costs that every customer comes with. Even though more customers could mean more income, more customers also comes with higher management, development and opportunity costs.

The point of diminishing returns

There will reach a point where the cost of obtaining or maintaining more customers is no longer worth the income those customers bring in. This could be a breaking point where you will have to hire someone to help, or a diminishing returns point where you simply are not making enough to cover costs. This could also be the point that you will be required to get more licensing or a larger office. Whatever the point, there is a point for every business where there are diminishing returns for each customer. You should know that point, and know how much more you would have to make (with more customers or increased prices), to break through that point. You should review this information on at least a yearly basis.

Fewer customers isn’t bad

Especially if you plan on keeping your business small, discouraging customers is not necessarily a bad idea. Raising your prices can help. If higher prices makes your product more exclusive or your time more valuable, you may not bring in as many customers, but the customers you do bring in could be worth much more. A thousand customers who pay $100 each may be worth $100,000, but 700 customers who pay $150 each will bring in $105,000 and will take you 30% less time to manage. You will have to experiment with your pricing, and you must be comfortable with saying no to potential customers because you do not have time, but the freedom to be picky about your clients can also save your sanity.

Sources

The Launch Coach
A Smart Bear
EProfit Partners