What is a customer base?
A clientele is a company’s main source of business and revenue. A clientele consists of current clients pay for products or services. A clientele can be identified or defined in several ways depending on the type of industry. Existing customers can also be the first to be sold new offers.
Key points to remember
- A customer base is a company’s core group of customers who generate revenue and profit.
- Developing, retaining and expanding its customer base is a key business objective.
- A clientele can be generalized or targeted depending on the type of business or product.
Understand a clientele
Finding new customers and maintaining existing customer base is a major initiative for any business since without customers the business cannot generate revenue. Strategies companies use to increase this base include networking, word of mouth marketingand referrals, develop a specialty or area of expertise, stay in touch with existing clients, show appreciation for clients, and consistently meet or exceed expectations.
Businesses that primarily provide professional services such as financial planning tend to use the term “customer,” while businesses that primarily provide products tend to use the term “clientsFor example, a financial planner’s customer base would include all people who have signed up to have their money managed. A CPA’s customer base would include all people and businesses who pay to have their tax returns prepared.
How companies approach their customers
An existing customer base is the means of generating the majority of a company’s revenue and, therefore, attracts considerable attention from management. A business that spends too much time prospecting for new customers while ignoring existing customers runs the risk of losing its business.
It is much more expensive to attract a new customer than to keep a current customer satisfied. It is also much more profitable to maintain and grow a business’ customer base. In a study of the Harvard Business Review, consulting firm Bain & Company found that “increasing customer retention rates by 5% increases profits by 25% to 95%”.
A customer base can also refer to a list of targeted prospects that a business wants to attract. When a business researches, develops, and plans to bring a product or service to market, capturing the attention of potential customers is of paramount importance. The new product must answer, help or solve a problem or a need for the target customer.
Companies use their existing customer base as a model to determine the potential success of a new product. For example, using company customer data demography such as age, location, income or gender, the company can determine the level of success of existing products within each demographic group. From there, companies can target new demographics that have a similar makeup when expanding into new markets or offering a new product. Also, an existing customer base can serve as a focus group, where the company can receive valuable feedback regarding a new product before bringing it to market.
The potential for success of a service or product is often based on the size and composition of the intended clientele that the company is prospecting or targeting. Luxury items, for example, are primarily aimed at a clientele with the financial resources and willingness to pay extra for a high-quality product or service. A company offering a high-end product, such as a limited-edition watch or car, can target its marketing initiatives to reach potential customers who have historical spending habits or who are most likely to spend on those products.
Advertising and marketing to expand a customer base could include television and radio commercials as well as social media marketing campaigns. A car company may engage in cinematic advertising, for example, targeting fans of racing car movies if that customer base is more likely to buy a sports car.
Example of a customer base
Bank of America Corporation (NYSE: BAC) is one of the largest banks in the United States and serves a variety of customer types and demographics. For a company of this size, one would think that it does not have a targeted clientele. However, the bank has a clientele that includes both individuals and businesses.
According to bank website, its clientele includes:
- Consumers or Retail Customers
- Small businesses in need of loans and business credit cards
- Wealth management through Merrill Wealth Management
- Corporate or commercial bank, which caters to large corporations where they provide investment and cash management services.
All of the above types of customers constitute the bank’s customer base. Each division may have a distinct strategy for maintaining its existing customer base and targeting new ones based on the behaviors, financial situation, goals, and needs of its current customers.