When creating or updating your strategic plan, you might be tempted to focus on innovative products or services, new geographic locations, or technological upgrades. But, what about your customers? Particularly if you’re a small to midsize business, focusing your strategic planning efforts on them may be the most direct route to a better bottom line.

Do your ABCs

To get started, pick a period — perhaps one, three or five years — and calculate the profitability contribution level of each major customer or customer unit based on sales numbers and both direct and indirect costs. (We can help you choose the ideal metrics and run the numbers.)

Once you’ve determined the profitability contribution level of each customer or customer unit, divide them into three groups: 1) an A group consisting of highly profitable customers whose business you’d like to expand, 2) a B group comprising customers who aren’t extremely profitable, but still positively contribute to your bottom line, and 3) a C group that includes customers who are dragging down your profitability, perhaps because of constant late payments or unreasonably high-maintenance relationships. These are the ones you can’t afford to keep.

Devise strategies

Your objective with A customers should be to strengthen your rapport with them. Identify what motivates them to buy, so you can continue to meet their needs. Is it something specific about your products or services? Is it your customer service? Developing a good understanding of this group will help you not only build your relationships with these critical customers, but also target sales and marketing efforts to attract other, similar ones.

As mentioned, Category B customers have some profit value. However, just by virtue of sitting in the middle, they can slide either way. There’s a good chance that, with the right mix of sales, marketing and customer service efforts, some of them can be turned into A customers. Determine which ones have the most in common with your best customers, then focus your efforts on them and track the results.

Finally, take a hard look at the C group. You could spend a nominal amount of time determining whether any of them might move up the ladder. It’s likely, though, that most of your C customers simply aren’t a good fit for your company. Fortunately, firing your least desirable customers won’t require much effort. Simply curtail your sales and marketing efforts, or stop them entirely, and most will wander off on their own.

Brighten your future

As the calendar year winds down, examine how your customer base has changed over the past months. Ask questions such as: Have the evolving economic changes triggered (at least in part) by the pandemic affected who buys from us and how much? Then tailor your strategic plan for 2022 accordingly.

Please contact our firm for help reviewing the pertinent data and developing a customer-focused strategic plan that brightens your company’s future.

© 2021 Covenant CPA

For many small to midsize businesses, spending money on marketing calls for a leap of faith that the benefits will outweigh the costs. Much of the planning process tends to focus on the initial expenses incurred rather than how to measure return on investment.

Here are five questions to ask yourself and your leadership team to put a finer point on whether your marketing efforts are likely to pay off:

1. What do we hope to accomplish? Determine as specifically as possible what marketing success looks like. If the goal is to increase sales, what metric(s) are you using to calculate whether you’ve achieved adequate sales growth? Put differently, how will you know that your money was well spent?

2. Where and how often do we plan to spend money? Decide how much of your marketing will be based on recurring activity versus “one off” or ad-hoc initiatives.

For example, do you plan to buy six months of advertising on certain websites, social media platforms, or in a magazine or newspaper? Have you decided to set up a booth at an annual trade show?

Fine tune your efforts going forward by comparing inflows to outflows from various types of marketing spends. Will you be able to create a revenue inflow from sales that at least matches, if not exceeds, the outflow of marketing dollars?

3. Can we track sources of new business, as well as leads and customers? It’s critical to ask new customers how they heard about your company. This one simple question can provide invaluable information about which aspects of your marketing plan are generating the most leads.

Further, once you have discovered a lead or new customer, ensure that you maintain contact with the person or business. Letting leads and customers fall through the cracks will undermine your marketing efforts. If you haven’t already, explore customer relationship management software to help you track and analyze key data points.

4. Are we able to gauge brand awareness? In addition to generating leads, marketing can help improve brand awareness. Although an increase in brand awareness may not immediately translate to increased sales, it tends to do so over time. Identify ways to measure the impact of marketing efforts on brand awareness. Possibilities include customer surveys, website traffic data and social media interaction metrics.

5. Are we prepared for an increase in demand? It may sound like a nice problem to have, but sometimes a company’s marketing efforts are so successful that a sudden upswing in orders occurs. If the business is ill-prepared, cash flow can be strained and customers left disappointed and frustrated.

Make sure you have the staff, technology and inventory in place to meet an increase in demand that effective marketing often produces. We can help you assess the efficacy of your marketing efforts, including calculating informative metrics, and suggest ideas for improvement.

© 2021 Covenant CPA

To generate revenue and foster customer loyalty, many businesses, including retailers, airlines and credit card companies, create loyalty and reward programs. Such programs can help companies attract and retain customers, but they may also be subject to fraud and abuse.

ATO risk

Loyalty programs are particularly vulnerable to account takeovers (ATOs). In these schemes, a criminal assumes control of a customer’s loyalty or rewards account and monetizes it. The thief redeems points for goods and services for personal use or sells them on the black market. These days, the information usually ends up on the dark web.

ATOs often are successful because many loyalty programs lack the robust fraud controls and dedicated teams of investigators to prevent and investigate them. Often, companies don’t understand the extent of fraud and abuse taking place in their programs to justify the investment.

3 steps

To help minimize fraud risk and limit financial losses, consider taking the following steps:

  1. Conduct a risk assessment. Review your loyalty program’s terms and conditions, structure, and activity to ascertain the potential for fraud and abuse. Think about engaging a suitably qualified fraud professional with experience evaluating loyalty programs to guide your efforts. 
  2. Gather and analyze historical losses. Establish a central location for employees to report fraud and abuse. Dissect each loss to identify its root causes and develop a list of potential control failings for remediation. And, if you don’t already have one, establish an anonymous hotline for employees and customers to report suspected fraud.
  3. Evaluate technology solutions. Use the results of your risk assessment and historical analysis of losses to pinpoint potential weaknesses for technology to address. For example, technology can help authenticate customers to prevent ATOs. It can also monitor transactions for activity indicative of fraud. 

Watch your customers

Although ATO schemes involving criminals are common, your company can’t overlook the potential for legitimate customers to abuse your loyalty program. For example, customers may redeem points, then deny doing so and ask you to credit their accounts. Sometimes unethical customers sell their points to online brokers and deny having done so when challenged. Customers could also open multiple accounts under their own or assumed identities to receive new account sign-up bonuses.

Finally, don’t overlook the fact that employees may compromise loyalty accounts. Make sure managers are aware of the possibility and keep an eye on workers with access to the accounts.

Maintain strong security

Contact us for help assessing the security of your loyalty program. If you suspect a widespread fraud problem, we can devise controls to limit thefts and losses.

© 2021 Covenant CPA

Fending off “friendly” fraud

Fraudulent behavior isn’t necessarily perpetuated by people hiding their identities. For example, legitimate customers sometimes use the credit card chargeback process to their advantage — and to the disadvantage of merchants. Others routinely abuse chargebacks to steal merchandise. Here’s how to protect your business from these types of “friendly” and sometimes dishonest fraud.

Chargeback mechanics

Friendly fraud pivots on a customer’s failure to communicate with a merchant. Instead of contacting a seller to discuss a problem with a good or service, some customers immediately dispute a charge with their bank or credit card company. They generally provide plausible reasons for the dispute and don’t mask their identify at any phase of the process.

A chargeback takes time and effort to resolve. And if the bank or credit card company honors a customer’s dispute (which they often do), the merchant must assume the loss.

4 steps

To prevent such chargebacks from harming your bottom line:

1. Track shipments. Keep an “eye” on orders from the moment they leave your facility to their arrival at a customer’s location. For shipments worth more than a certain amount, consider requiring the customer’s signature to release it from the shipper’s possession. With a robust document trail, you’ll be able to support your denial of a chargeback — even if a customer claims he or she didn’t receive the goods.

2. Communicate your refund policy. Create a detailed refund policy and communicate it to customers throughout the shopping process and when the sale is made. For example, post signs in your store or notices on item pages of your website. Just keep in mind that an overly restrictive refund policy may create an incentive for customers to go directly to their credit card companies to dispute a transaction.

3. Invest in customer service. Some customers resort to chargeback requests because they’ve had trouble contacting or reaching a resolution with the merchant. Make sure you provide customers with multiple support channels, such as phone, email, and instant message. Additionally, give customer service personnel the authority to resolve disputes quickly — including to issue refunds or credits without supervisory approval.  

4. Watch customer activity. Collecting and analyzing customer data can deepen your company’s understanding of purchasers’ behavior and help detect anomalies. For example, if a customer frequently checks the status of his order and then denies placing the order, you may be able to use this fact when disputing a chargeback. 

Play defense

It’s important to understand that not all chargeback requests are hostile or intentionally fraudulent. But you also need to protect your business from bad actors. Contact us for more information on “friendly” fraud.

© 2021 Covenant CPA

Building customers’ trust in your website

The events of the past year have taught business owners many important lessons. One of them is that, when a crisis hits, customers turn on their computers and look to their phones. According to one analysis of U.S. Department of Commerce data, consumers spent $347.26 billion online with U.S. retailers in the first half of 2020 — that’s a 30.1% increase from the same period in 2019.

Although online spending moderated a bit as the year went on, the fact remains that people’s expectations of most companies’ websites have soared. In fact, a June 2020 report by software giant Adobe indicated that the pandemic has markedly accelerated the growth of e-commerce — quite possibly by years, not just months.

Whether you sell directly to the buying public or engage primarily in B2B transactions, building customers’ trust in your website is more important than ever.

Identify yourself

Among the simplest ways to establish trust with customers and prospects is to convey to them that you’re a bona fide business staffed by actual human beings.

Include an “About Us” page with the names, photos and short bios of the owner(s), executives and key staff members. Doing so will help make the site friendlier and more relatable. You don’t want to look anonymous — it makes customers suspicious and less likely to buy.

Beyond that, be sure to clearly provide contact info. This includes a phone number and email address, hours of operation (including time zone), and your mailing address. If you’re a small business, use a street address if possible. Some companies won’t deliver to a P.O. box, and some customers won’t buy if you use one.

Keep contact links easy to find. No one wants to search all over a site looking for a way to get in touch with someone at the business. Include at least one contact link on every page.

Add trust elements

Another increasingly critical feature of business websites is “trust elements.” Examples include:

  • Icons of widely used payment security providers such as PayPal, Verisign and Visa,
  • A variety of payment alternatives, as well as free shipping or lower shipping costs for certain orders, and
  • Professionally coded, aesthetically pleasing and up-to-date layout and graphics.

Check and double-check the spelling and grammar used on your site. Remember, one of the hallmarks of many Internet scams is sloppy or nonsensical use of language.

Also, regularly check all links. Nothing sends a customer off to a competitor more quickly than the frustration of encountering nonfunctioning links. Such problems may also lead visitors to think they’ve been hacked.

Abide by the fundamentals

Of course, the cybersecurity of any business website begins (and some would say ends) with fundamental elements such as a responsible provider, firewalls, encryption software and proper password use. Nonetheless, how you design, maintain and update your site will likely have a substantial effect on your company’s profitability. Contact us for help measuring and assessing the impact of e-commerce on your business.

© 2021 Covenant CPA

A technician at a mobility equipment supplier was servicing the motorized wheelchair of a long-time customer and noticed it was a brand-new model. “Where did you buy the chair?” he asked the customer. “At the health care supply store on the other side of town,” the customer replied. The technician paused and then asked, “Well, why didn’t you buy the chair from us?” The customer replied, “I didn’t know you sold wheelchairs.”

Look deeper

Most business owners would likely agree that selling to existing customers is much easier than finding new ones. Yet many companies continue to squander potential sales to long-term, satisfied customers simply because they don’t create awareness of all their products and services.

It seems puzzling that the long-time customer in our example wouldn’t know that his wheelchair service provider also sold wheelchairs. But when you look a little deeper, it’s easy to understand why.

The repair customer always visited the repair shop, which had a separate entrance. While the customer’s chair was being repaired, he sat in the waiting area, which provided a variety of magazines but no product brochures or other promotional materials. The customer had no idea that a new sales facility was on the other side of the building until the technician asked about the new wheelchair.

Be inquisitive

Are you losing business from long-term customers because of a similar disconnect? To find out, ask yourself two fundamental questions:

1. Are your customers buying everything they need from you? To find the answer, you must thoroughly understand your customers’ needs. Identify your top tier of customers — say, the 20% who provide 80% of your revenue. What do they buy from you? What else might they need? Don’t just take orders from them; learn everything you can about their missions, strategic plans and operations.

2. Are your customers aware of everything you offer? The quickest way to learn this is, simply, to ask. Instruct your salespeople to regularly inquire about whether customers would be interested in products or services they’ve never bought. Also, add flyers, brochures or catalogs to orders when you fulfill them. Consider building greater awareness by hosting free lunches or festive corporate events to educate your customers on the existence and value of your products and services.

Raise awareness

If you have long-term customers, you must be doing something right — and that’s to your company’s credit. But, remember, it’s not out of the question that you could lose any one of those customers if they’re unaware of your full spectrum of products and services. That’s an open opportunity for a competitor.

By taking steps to raise awareness of your products and services, you’ll put yourself in a better position to increase sales and profitability. Our firm can help you identify your strongest revenue sources and provide further ideas for enhancing them. Call us at 205-345-9898.

© 2018 Covenant CPA