Quality targeting for quality outcomes

The British Business Bank (BBB) has launched its latest Small Business Finance Markets Report – a comprehensive overview of the market for small business finance in the UK.

Amongst a plethora of statistics is a statement that says: "small businesses have become entrenched with their reluctance to use finance".

Not great news if you're a small business lender with stretching targets in front of you.

Lying behind this statement are the facts. The proportion of businesses that borrow is put at 34% (down from 38% in 2017 and 44% in 2012). 47% are currently not using external finance and are firmly disinclined to do so, which puts them into the classification of "permanent non-borrowers".

Between these sit 19% of the market that are candidates for conversion.

So, what if you could seperate out the borrowers from the permanent non-borrowers? How much better would your marketing be?

Turning statistics into information you can use

The BBB has created personas for the businesses which sit in the middle ground and has labelled them "QuickSilvers", "Savvy Entrepreneurs" and "Fighters". Personas are good because they help focus thinking and allow us to create well targeted strategies with tailored messaging.

"Quicksilvers" are the fastest growing businesses with the most ambitious growth plans. They account for 6% of the business population. "Savvy Entrepreneurs" are most likely to have run a business before or have multiple businesses. These account for another 5% of the population. "Fighters" account for 8% of the population and are trying to overcome obstacles and grow. Quicksilvers and Savvy Entrepreneurs are most inclined to take risks to grow their businesses. Fighters are more cautious and, reportedly, 70% will forgo growth to avoid borrowing more.

These are important numbers for anybody thinking about marketing to small businesses, because it is marketing budget largely wasted to try and convert the "permanent non-borrowers". Add in the cautious fighters and that's 52.6% of the budget that could be put to better use (who was it who said half of my marketing budget is wasted, I just don't know which half?).

Tageting beyond the basics

Converting the Happy Borrowers, QuickSilvers, Savvy Entrepreneurs and less risk averse Fighters into customers needs an intelligent targeting strategy that goes far beyond the "spray and pray" tactics of mass marketing. Both targeting and messaging needs to be adapted to the persona.

So, how can this be done?

For a start, there is a need to move quickly beyond targeting by SIC code and rudimentary profit indicators. That's easy, everybody does it and it creates massive waste.

Instead, we recommend aggregating a number of factors together to create a propensity model.

Forget industry segmentation, think about propensity

Here's an interesting fact: SMEs with more than £10k of credit balances have a reduced propensity to borrow. Sounds obvious, doesn't it?, but there's your first clue. Here's another fact: while micro and small businesses (0-49 employees) are cutting back on borrowing, the businesses that have the largest appetite to borrow more are the medium-sized ones (50-249 employees). There's a second clue. Pulling together external and internal intelligence like this is what helps build your unique propensity model.

Here at The Marketing Eye, we use third-party and our own proprietary tools to look at company information from a wide variety of sources and match businesses to a propensity model that we develop with our client. What are the credit balances? Is there existing or previous borrowing in the balance sheet? Are the directors involved in multiple businesses? What is the growth rate over the past three years? How big is the business? What does the website say about what the business really does?

This can reduce the total addressable market from 5.9m SMEs to a relative handful, but it's much more targeted and the results speak for themselves.

Here's a genuine quote from one client's prospect: "I'm impressed you knew I was upgrading the fleet this year". Confession: of course we didn't, but the propensity modelling told us that this business was highly likely to be in market.

Everybody wants to target highly profitable and growing businesses that credit will love, but without more intelligent thinking, there is a more than 50% chance that your perfect prospect will be a permanent non-borrower and your carefully crafted message will fall on deaf ears. Be smart, stand out from the crowd and hyper target - it's the future.

Contact us to find out more.