Why customer segmentation is a smart cash flow strategy

Finance people aren’t the only ones who need to pay attention to cash flow banking. Cash is the fuel that runs your business and every aspect of your business can play a part in adding or subtracting it from your bank account.

Segmenting your customers can help keep cash flowing. This approach is more than a smart sales strategy. It also can help improve business cash flow by turning your focus toward who you serve best, creating opportunities to maximize revenue and cutting away inefficiencies that add cost.

What is segmentation?

Before we discuss the cash flow benefits of customer segmentation, we should understand what it is.

Customer segmentation is when you divide customers into groups based on common characteristics. For example, if you own a soap company, you probably market your products to women and men in different ways. Segmenting by gender is just one approach. You also can segment by age, income, purchasing behaviors — any way of grouping people that allows you to better understand your customers and how to reach them could be useful.

Benefit #1: the ability to find your focus

Early on, many businesses are in hustle mode. You do what it takes to get and keep new customers. Sometimes it means stretching beyond your comfort zone. And that’s OK. You’re just trying to survive. But it’s exhausting and unsustainable over time. Customer segmentation can help you identify your most profitable customers and where to focus your energy. Ask yourself:

• Do you have customers who require a lot of time and resources?
• Are you often creating new processes to accommodate special requests?
• Is there a certain group of customers you’re excited to hear from?
• Do you have customers who frequently want your highest-margin products or services?

Group your customers and think about what they need. Then you can focus your sales and marketing on nurturing your core customers and cut out all of the other tasks that were pulling you in a million directions, taking you away from maximizing your strengths.

Benefit #2: opportunities to increase sales

A segmented customer base allows you to more strategically target products and services to the customers who are most likely to be interested. The more targeted your outreach, the more likely you are to make a sale. Sales are all about speaking directly to your customers’ individual needs and delivering what they’re looking for. Customer segmenting increases the chances that you’ll reach the right person with the right message and product at the right time.

Returning to our soap company example, if you know that women and men prefer particular fragrances, you can run separate ad campaigns for the same sale. A campaign targeting women might run on health and beauty websites, on Instagram and through emails sent to the women in your database. A separate campaign for men might run on sports and outdoors sites, via Facebook and though emails sent only to the men on your list. Each campaign could feature different products and messages that are proven to appeal to those customers.

Benefit #3: insight into how to spend resources

A do-everything approach to business can create operational headaches that can cost a lot of time and money. Sticking with the soap company example, if you’re making 11 different fragrances of bar soap, body wash, shampoo and bath bombs — plus shaving soap, baby wash, bubble bath, deodorants, lotions and hand sanitizer — you could be running dozens of production processes with hundreds of ingredients. And each product requires its own label and packaging. Unless your business is very large, all of this changeover and detail can cut into your margins.

But what if you cut out a few products that don’t sell particularly well? How might that reduce downtime? Could you simplify sourcing or cut packaging costs? Often customer segments can help you identify which products group together best and which low-selling products do not appeal to your core customers. Streamlining in this way can allow you to cut costs and preserve cash without sacrificing revenue.

Expand your understanding of cash flow

It might not be intuitive to think of your sales and marketing strategies as part of your small business cash flow management. But the more you look at your business through the lens of cash flow, the better you can focus on profitability and efficiency.

Cash flow troubles don’t happen overnight. A customer segmentation strategy can help build the resiliency your business needs to create cash flow as your business evolves.

Learn more about how to maintain a healthy cash position with our online program Navigating Your Cash Flow.” It includes tools to help you visualize a year of cash flow, identify your top customers and maintain strong vendor relationships.