What is the purpose of business?

By Hitesh Changela - 10 November 2016 | Business, Customer, Sales | 707 words | 6 to 7 minutes read


There about 120 million businesses in the world.  If we ask this question “what is the purpose of business?” to each one. What would be the answer?

Few answers could be…


What should be the real purpose of the business?

To quote Peter Drucker, the father of modern management and legendary management guru, “The purpose of business is to create and keep a customer.

What a profound statement. It’s so simple and obvious. However, perhaps not all 120 million businesses operating while keeping this fundamental principle in mind.

Now let’s dissect Peter Drucker statement “The purpose of business is to create and keep a customer.

Where should be our focus to get a customer or to retain a customer?

Again, we ask the following question to 120 million businesses

“Where you spend most of the time in business getting a customer or in retaining a customer?”

Experience tells us that we spend most of the time in getting customer rather than retaining the customer. Perhaps we spend 80% time in getting the customer and remaining 20% time in retaining customers.

However who contributes to most of the revenue new customers or existing customers? According to Technology, Research and Advisory Firm Gartner 80% of a company's future profits comes from 20% of its existing customers.

That means we are spending our 80% time in getting a customer who contributes 20% of revenue and spend remaining 20% time in retaining a customer who contributes 80% of revenue.

So why most of us focus our energy, time and resources in getting customer rather than keeping a customer?

  1. That’s what we are supposed to do.
  2. Getting the customer is the key criteria determining our success.
  3. We assume and fear we would lose customers anyway, so getting customers is critical
  4. We take granted existing customers would stay with us.

Why it’s vital to focus on retaining customers?

Experience teaches us that it’s vital to keep the focus on retaining the customer. The classic example is that of the restaurant. In midsize town, even if each and every resident take a meal in a restaurant just once and never visit again then that restaurant would get out of business eventually. On the other hand restaurant with few but loyal and regular customers can survive and thrive.

Another classical example is that of the leaky bucket. If we keep pouring water without plugging the leakage then we can’t store water in that bucket. So it’s critical we should first plug the leakage before putting water into a bucket.

In the same way, it’s very important, we have solid customer retention strategies in place before we focus all our efforts in getting new customers all the time. Because if we don’t do that then eventually we would lose more customers than we could get new customers. That would be a disaster for any business.

So it’s critical we focus on keeping customer not just getting a customer.

What is important, customer or sale?

Chris Cardell, Internet Marketing, and Entrepreneurial Success Expert has made one profound statement in one of his live seminar in London.

“Is the purpose of a customer to get a sale or is the purpose of a sale to get a customer?”

Meaning are we trying to get customers so we can have revenue or sales from them or we are selling because we would like to get customers?

Again, let’s visit one more profound statement from Peter Drucker, the Father of Modern Management. "The only profit center is the customer. Everything else is the cost in the business.” Everything in the business i.e. Marketing, selling, operational, finance, HR, customer service cost money. The only customer is the source of revenue.

Conclusion

Fundamentally for the success of any business, we need to follow all three things.

  1. Getting customers
  2. Retaining customers
  3. Generating sales.

What are your thoughts? Do you agree with my view? Mastering fundamental is the key. As in sports when the champion team faces any challenge, coaches always advice to get back to basics. Please share your thoughts in the comments below.



Hitesh Changela

CEO, Author, Enterprenuer

Hitesh Changela is CEO of CRM Ultimate Limited, an innovative software technology company, based in the UK. Hitesh has worked in the IT industry for more than 17 years, including over 6 years at Microsoft Ireland. He is author of three books already published on Amazon. Book, Workbook, and QuoteBook . Hitesh lives in London. You can connect through social share or send him email hitesh@hiteshchangela.com or call him on +447404303064.