How to Track Your Customers for Competitive Intelligence - dummies

How to Track Your Customers for Competitive Intelligence

By James D. Underwood

Competitive intelligence often focuses on competitors, but you also need to keep track of your customers. After all, if your top customers begin to sneeze, you’re the one who’s going to catch the cold. To do this, you want to use the same profiling technique that you use for your competitors.

The more you practice using this technique, the better you become at picking winners and losers and spotting which customers and competitors are headed for trouble.

To monitor the health of your customers, do the following:

  • Maintain seven-factor profiles on your top five to ten customers. Compare profiles from year to year so you can pick up on important changes and warning signs.

  • If a key customer is a publicly traded company, run key financial ratios, including the current ratio (current assets divided by current liabilities). Current assets are generally those that can be turned into cash within 30 days; current liabilities are those that are due within 30 days. The current ratio gives you an idea of a company’s liquidity, which is its ability to pay off its current liabilities.

    Below is a simple example of the Jones Company, whose current ratio is trending in the wrong direction. Between 2009 and 2014, the ability of the firm to cover its current liabilities dropped from 2.5 down to 0.7.

    In other words, in 2009, it had the ability to pay off all current liabilities to the tune of 250 percent of what it owed. But by 2014, it could pay off only 70 percent of its current payables as of December 31.

    Keep a five-year running chart that allows you to visually compare the year-by-year changes that occur in each customer’s current ratio.

  • Maintain an intelligence file on each of your key customers. Changes in management, merger rumors, or other factors can have an impact on the future of those customers and your business.

Intel on customers can be very valuable for executive decision making. In some cases, if intel reveals that a customer is in trouble, digging up additional information may identify a customer as a prime takeover target.