Increasing Client base by Pushing Credit Terms

It’s a roller-coaster of a business world out there. The stock market goes up and down by the hour, unemployment stays stagnantly high, and you’re a small business just trying to stay-a-float and maybe even increase your customer base. There’s the old adage, “You need money, to make money” and while that’s true in a sense, good money management can help you make money, even when you don’t have a lot of money to spend.

Every day it seems this company or that company is raising money from Venture Capitalist and anyone else willing to loan them a buck. What would you do with $30 million if you had just received it from a VC? Obviously you would reinvest it in proven ROI mechanisms. Or maybe even test new ROI methods. Either way, the basic fact is that while start-ups and the like need money to increase customer bases, not all small businesses are able to raise that capital. So that begs the question, “How do I increase customer base with limited funds?” The answer is simple and yet often over looked: by pushing credit terms.

Here’s an example:

Little Johnny is starting his lemonade stand and it’ll last for 6 weeks. All else equal, he knows that if he spends $5 at Staples on posters and flyers, that he’ll be able to get 2  new customers. Each customer will pay $5 for lemonade (Premium Organic Lemonade). Thus it would look something like this:

The first table shows the example if Johnny were to pay staples immediately every time he bought the posters and flyers. He takes his $5, buys the supplies, makes $10, then pays $5 of that to staples creating a profit of $5 to reinvest for the next week. This cycle continues for 6 weeks, until at the end of 6 weeks, Johnny’s Lemonade stand has produced $5 dollars of profit and a grand total of 12 customers to come back next summer.

The second table shows what if would look like if Johnny were to push the credit terms with Staples to 2 weeks. Therefore, the first week, Johnny spends his $5, makes $10, but pays nothing to staples. He has the same amount of customers this week as he did in the first table, however, this time he has $10 to reinvest instead of $5. Taking this out further, we can see that by pushing the credit terms for his “marketing supplies”, Johnny has effectively gained an additional 70 customers, while still only using his initial investment of $5.

While both tables end the 6 week period with a net profit of $5, the key here is that this is for new customer generation. If Johnny has 10% of new customers over that six week period return again, then he’s made a profit of $40 more by pushing the credit terms with staples.

As small businesses, every penny counts. Whether that’s hiring new staff or investing in marketing tools that will generate a return, by successfully managing money and pushing credit terms, any business can turn a small investment in to a rewarding one.