May 12, 2010

Chris Zane built Zane’s Cycles with a singular focus on the lifetime value of his customers.  “We want to build long-term relationships with customers,” he told me.  “We offer a lifetime free service policy on our bicycles and have even gone out to fix tires for customers who call from the road.”  He instills in all of his employees an understanding of the lifetime value of each customer – $12,500 – so that they understand that if the customer walks away unhappy, “We didn’t lose $7 on a tube, we lost a $12,500 customer relationship.” 

Given his long-term focus and the volume of his purchases (approximately $1 million last year), I wanted to talk to Chris about his cash flow strategies. “Cash flow is the lifeblood of my business,” he told me, emphasizing the importance of understanding the “money process”:  “I charge all of my expenses.  With my PLUM Card, if I pay within 10 days, I can get the 1.5 percent discount.  For what I spend, that means $15,000 in discounts. I’d have to sell more than twice that to see that in profit.  It’s much easier to save than to sell.”

To pay in full and take advantage of the discount, Chris leverages his cash reserves and a line of credit through his bank.  He advises other business owners to “ensure that financial partners know that you understand how to maximize your financial resources.  This helps build their confidence in you.”

Chris also advises:

• Don’t make decisions based on short-term gains; look beyond the value of individual transactions to the long-term relationship.  “If you focus on the lifetime value of the customer, you’ll be more willing to write off a small loss, knowing you’ll win more in the end.”
• Focus on long-term relationships with vendors, as well. “Most similar, seasonal businesses buy product from 40 to 50 vendors. I narrowed ours down to 10 vendors. By giving more business to these vendors and ultimately becoming more important to them, we get better service and negotiations from them, including preferred payment terms.”
• Monitor expenses in real time, for the long-term and short-term view.  “By checking our account online every day, I have the ability to review our current purchases and also have insight into my long-term liability.”
• Look up, not down. “Up is your credit capacity. As I tell my kids when they say it must be great to be your own boss, I do have a boss. I have creditors and bankers, and I need to keep my financial statement up to their standards. I know a lot of business owners who haven’t focused on their credit picture.  They don’t understand that when things are going well, creditors are willing overlook imperfections. But as risk goes up, they become more focused.  You can’t think in terms of right now.  You have to always look at the long-term.”
  

I thank Chris for sharing his story and invite others to do so, as well.  If you have advice for other business owners on how to maximize Card usage to better manage cash flow, please e-mail me at marcy @ openforum.com.  You can also follow me on Twitter @marcyshinder, and follow OPEN Forum @openforum.

Related Topics

• Money

Related keywords

Marcy Shinder, Article, credit cards, cash flow, customer relations, plum card, American Express OPEN, Zane's Cycles, Chris Zane