"Identifying your ideal customer in advance will streamline your efforts and make them more efficient," Broadnax says. The flip side of that involves knowing when to reject or turn away from potential customers who may not be good long-term prospects, which is discussed later in this article.

Once you have identified your target customer, there are several different strategies for courting them. Following are various approaches that businesses in a number of different industries have found successful.

One is to offer incentives to existing customers for referring new customers to your business. At Amazing Siding Corp., a home improvement company with 11 locations and one franchise, customer acquisition is an ongoing activity pursued on many fronts. The Houston-based company uses direct mail and radio advertising on a regular basis, but one of its most effective strategies is a free inspection program for existing customers, which it uses to generate new sales leads.

FREE INSPECTION

"About 12 or 18 months after we complete a job, we contact the customer and offer them a free inspection," explains Bob Birner, vice president of Amazing Siding. "In the vast majority of cases, everything is fine, but if we do find something wrong, we fix it right away."

"This is especially effective in our business because trust is such an important issue in the home improvement field," Birner notes. "People tend to trust referrals that come from friends and neighbors and to be more responsive than they might be to a sales call."

The strategy also creates an opportunity for Amazing Siding to win an add-on sale from the original customer, and it reduces the impact of ongoing service demands by identifying and rectifying small problems early, before they can become big ones.

Another strategy that can be effective is using a public relations campaign to deliver your story to potential customers, which is something Bridgeway Capital Management does.

"People tend to trust referrals that come from friends and to be more responsive."

At a time when the mutual fund industry has been tarnished by charges of self-dealing and other questionable practices, Bridgeway's business philosophy has obvious appeal to potential investors. However, as part of its commitment to keeping costs low, the firm eschews conventional advertising in favor of public relations.

"We could add at least $100,000 a year to our bottom line if we didn't walk away from revenue opportunities such as soft dollar commissions (the practice, widespread in the mutual fund industry, of using investor funds to pay for things such as research and computer software), but it wouldn't be in the best interest of our shareholders' Montgomery says. "Unfortunately, there is no place in a prospectus where you can say that."

Offsetting that obstacle, Bridgeway's PR agency attracts a great deal of coverage for the company in both the trade and consumer financial press. That has led to some good speaking opportunities, including testimony this year before the Congressional committee investigating dishonest mutual fund practices.

The strategy, coupled with others in Bridgeway's overall customer acquisition effort, has been extremely effective. Last year Bridgeway ranked 151st on the Inc. 500 list of fastest-growing privately held companies, with a five-year growth rate approaching 1,100 percent. Its revenues increased about 55 percent in 2003, and the value of its assets under management tripled as new customers flocked to its funds.

MORE CLIENTS

"Organic growth is the easiest and most efficient way to expand your customer base," says Andy Priest, founder and chief executive officer of TRE Financial Services, a developer of technology solutions for tax preparers and financial institutions.

Independent tax preparers comprise the bulk of TRE's customer base, and the company has helped many of them grow from a single location to multiple offices. TRE tailors the type of growth assistance it provides to its clients on a case-by-case basis.

The company has helped a number of clients with site selection and securing leases, and it provides marketing materials and assistance in formulating a growth strategy in other cases, Priest says.

"The base of our business model is transaction fees for electronic filing," he explains. "The more returns we handle, the more money we make. It follows that the more returns our clients prepare, the better our prospects are going to be."

The strategy has played an important role in TRE's growth, which has averaged between 16 and 20 percent annually over the past 10 years. Last year, the company did about $28 million in sales, and Priest expects it to maintain a 15-percent-a-year growth rate for the foreseeable future.

"Organic growth is the easiest and most efficient way to expand your customer base."

He has found that by looking at the customers his company currently has and focusing his sales efforts on prospects with similar characteristics, his closure rate goes way up. A great place to find such prospects, he says, is in the editorial pages of business magazines, where he looks for growth companies with complex information needs that might benefit from CRM software to manage data.

"If you have a furniture business, look for stories about companies that are expanding or relocating. If you have an outplacement business, look for companies that are downsizing," he advises.

"Focus your efforts on publications that are aligned with the characteristics of your own business-if you are a local business, look at local publications; if you're national, look at national publications," Dovarri adds.

Whatever tactic you use to entice customers, Dovarri is convinced that having a first-rate Web site in today's environment of tech-savvy consumers is not an option, but a necessity. "When people are looking for a product or a service today, where do they turn?" he asks. "More and more of them start with the Internet, long before they ever pick up a phone."

"Increasingly, a company's Web site is the first face it shows to potential customers."

Small businesses should keep in mind that while customer acquisition is important, it is just one component in overall customer equity, which is the lifetime value of a customer, according to Dominique Hanssens, a marketing specialist at UCLA's Anderson Graduate School of Management.

Customer equity is equal to the expected profits minus the company's acquisition and retention costs over the expected life of that customer, Hanssens says. The other components are customer retention and customer cross-selling. Together, they form a three-part customer-equity approach that he sums up as, "Get them, keep them, grow them."

"Use history to establish patterns and derive retention behavior to improve on judgment," he advises. "Continuous experimentation should be utilized to maximize your marketing productivity. When you find something that works, nurture it and use it cautiously. Do whatever you can to make it proprietary, so it will be more difficult for your competitors to copy it."

As mentioned earlier, not all customers are good customers. Sometimes it pays to walk away right from the start, says Parsons, of the Better Business Bureau.

"It's self-defeating to add customers who are not going to contribute to your growth, well-being and profitability," he declares. "Sometimes it just makes sense to walk away from customers who don't fit those criteria."

To help business owners determine when to walk away, Parsons has put together a list he calls "The Five Commandments for Saying No to a Prospective Customer."

DO UNTO OTHERS

The first item on the list is to treat others as you wish to be treated. "This is probably the simplest and most common axiom to consider," he says. "When you get a customer who treats you with disrespect-who basically does all those negative customer-service things that businesses sometimes get accused of-walk away. That's not a relationship that will improve over time."

Second is, "Honor thy budget." Avoid customers who want you to play "payment Russian roulette"-those who try to bargain for better terms when their credit card is rejected, aver that they are "good for it" when their check bounces or pay with a starter (very low-numbered) check. Parsons calls them "stealth budget" customers.

Commandment number three is, "Thou shalt not seek free lunch." This is particularly applicable to service businesses.

"You fix the little old lady's brakes, and she asks if you could just take a peek at that rattle under the hood," Parsons explains. "Before you know it, you're in over your head, the customer gets mad, and it's all because you tried to be a nice person. Better to have said no."

"It's self-defeating to add customers who are not going to contribute to your growth."

The final admonition is, do not permit negative "spin gods" before you. It is a conversation familiar to most business owners. "The customer brags about how many companies they have fired from the job and their close ties to government leaders and others who could make your life miserable if you screw up the business relationship," Parsons says. "Better to leave that drama to Hollywood and walk away."