Expand your customer base to build small business credit

George Acheampong

Cash flow and capital are the lifeblood of any small business, which is why small business credit can be such a valuable resource to help you grow and scale your business. Unfortunately though, for many small businesses owners, it often seems like gaining approval for small business credit and loans is no easy feat.

Of the various types of small business loans, some of the most typical for small business owners are SBA loans, short-term loans, and business lines of credit.

• SBA loans are large loans best for financing major business endeavors, and average about $100k.¹
• Short-term loans are more accessible than longer-term loans, and better for smaller one-off endeavors for your business. The average small business loan amount for short-term loans is around $20,000.²
• Business lines of credit can either offer small or very large amounts of funding. The average small business loan amount for shorter-term lines of credit is around $22,000.²

Lenders have a variety of requirements.³ They want to see things like a working business plan, annual revenue, cash flow, time in business, type of industry, and more in order to qualify you.

A quick google search for pathways to revenue diversification will result in countless lists of approaches. While there are no standard practices or a single authority on diversifying revenue—especially as technology is rapidly changing industries—there’s one common denominator: the customer.

Developing innovative approaches to engaging new and existing customers is a common thread of advice. Here’s how you can split your customers into three categories to diversify revenue and build small business credit, regardless of your industry. It all starts with expanding your customer base.

A great way to increase cash flow, while positioning your business to build small business credit, is to broaden the spectrum of the customer types you serve. This will diversify your client base in a way that allows you to provide a deeper level of service to a larger pool of clients.

As a small business owner it’s likely that you have an ideal customer in mind for your premium service. A restaurant owner may prefer regular customers who dine in. A gym owner may prefer customers who pay yearly membership fees. No matter the type of small business you’re running, your ideal customer is the one that understands the value and depth of your service/product, and is willing to pay a premium price for it.

However, it’s hard to say no to a potential customer just because they don’t fit the ideal profile. Instead of forcing a market-fit, you may want to consider adjusting your product or service in ways that meet customers at various levels of need. This allows for intentionality regarding the level of work and effort required to serve customers at each level, making it more sustainable for you and impactful for them.

From my 10 years of experience as a professional service provider, I have found that regardless of industry most customers are likely going to fit into one of three categories: a Do It Yourselfer (DIY), a Collaborator, or a Delegator.

A DIY customer is someone who would prefer to save money by being hands on, or simply does not have the financial resources to pay for the full experience of a product or service outright. DIY customers expect to get their hands dirty but may appreciate some refined guidance. As a small business owner, you may consider methods to package or incentivize your product in ways that can routinely be updated and redistributed.

• In my profession this could be someone who wants to improve their finances, but would rather review and implement my advice on their own. My knowledge in the format of an e-book may suffice.
  
  
• If the customer was a retail shopper, they’d likely rather come in store and purchase instead of paying for shipping or delivery fees. Perhaps regular discounts off of minimum in-store purchases would create more value for the way they prefer to shop.
  
  
• The DIY customer could even be a gym member who prefers to work out at their convenience. They may not be willing to pay for training or a long-term membership commitment; however, they might see value in downloadable exercise routines, doable at their own pace, rather than paying for training or committing to long-term membership.
  

DIY offerings create space for you to provide value in a reasonable format for yourself and the customer, a true win-win. This type of offering is considered a “one-to-many” Offering, which means you provide a product or service that can reach a lot of people at scale.

The next type of customer you may encounter is a Collaborator. A collaborator values the quality of the distinct product or service your small business offers. However, this customer type still isn’t quite ready to afford your premium services. They want real-time access to your business, a step above the demand for DIY material.

• In my case, a collaborator wouldn’t want to apply my advice on their own, nor would they want to pay a retainer fee for my financial services. However, they would most likely pay for a 30- or 60-minute consultation where I can walk them through their problem.
  
  
• Let’s say your business is in the tech industry. A collaborator may not be willing to pay for a device to be repaired or optimized, but they might be willing to pay for technical support digitally or via phone.
  
  
• If you have a private practice in the health and wellness industry, your customer may not desire in-person coaching, but they may opt in for remote sessions.

You generate revenue from collaborators by working with them to provide oversight and guidance. I often consider this service offering as “coaching” or “done together with you.”

Last but not least, the final customer type is the Delegator. This is the customer who sees value in paying premium pricing and can afford it.

• It’s the retail shopper who will pay a membership fee for discounts on in-store purchases, online orders, and tailoring.
• It’s the tech lover who doesn’t love tech quite enough to forgo paying for installation and maintenance.
• It’s the fitness enthusiast who will invest in the long-term membership package complete with a trainer and nutritionist.
• The Delegator is the client who will happily outsource for someone else to do their taxes or their laundry.

Not only do they see a distinct value in the way your business provides a product or service, they are willing to pay top dollar for you to implement it for them.This could be considered a “done for you” service.

Obtaining funding for your business is incredibly important. By defining your customer type(s) and developing multiple ways to provide your service or product, you’re taking an important step in building small business credit for your business.

Once you’re approved for credit, you can distribute your new funds across common growth areas for any business such as personnel, tools, and equipment, as well as inventory or software you need to run your business operations. Each of these are likely to generate return on investment, which you can continue to leverage for additional credit or lending approval as your business grows.

¹https://www.federalreserve.gov/releases/e2/current/default.htm
²https://www.fundera.com/business-loans/guides/average-small-business-loan-amount
³https://smallbiztrends.com/2020/06/small-business-loan-requirements.html