As we often say, not all your customers are equal. However, even when a business thinks that it can separate the good from the bad, it might not be as straightforward as you think to identify the ‘best’. For example, are your best clients those that are the biggest, or the highest spenders?
Boasting a large, prestigious brand as a client is certainly good for your status – not to mention useful for creating marketing collateral to demonstrate the type of clients you can attract and work with. You may also look at your top-line revenue and be able to single out your customers who spend the most amount of money with you.
Surely, it’s these that you can call the best? Not necessarily.
While a customer might bring in a lot of money, purchasing frequency is an important consideration. A retail customer might make a significant one-off purchase (half a dozen bridesmaid's dresses for a wedding, for example), but a regular customer who spends far less but more often may ultimately be of more worth to you.
Factoring in cost-to-serve and acquisition costs could also mean they are not quite so profitable as you first thought. Think about those customers who are constantly raising support tickets, you are spending unnecessary amounts of time on the phone with, consistently cancel orders or frequently return goods. No matter how big a customer or client they are, ask yourself – is it costing you a disproportionate amount to manage these ‘squeaky wheels’?
A high cost-to-serve isn’t always the fault of the customer, though. In order to show how much a business values an impressively large or high value client, they could be over-servicing the customer at a cost to profitability. Agencies and SMEs in particular often fall into the habit of bending over backwards for a new customer, providing a level of time and resources than can be unsustainable.
Instead, you should be looking at your most ‘valuable’ customers. Along with purchasing products with high margins, these are the people who buy without negotiating discounts that eat into your profits. They are also more likely to pay on time without having to be chased with invoices and, importantly, do not take up valuable time and resources with after-sale support and service.
So how else can you identify your most valuable customers? The first step is to ensure you get a complete view of your customers across all devices and channels. Without aggregating your customer data, it could be easy to overlook a valuable piece of information that prevents a holistic view. Then, the most commonly used metrics look at:
- Lifetime customer value – a long-term view of spending rather than a snapshot of a single purchase
- Average purchase value – to identify high-value transactions and key targets for specific or triggered campaigns
- Price sensitivity – is a customer frequent spender, but only once something is on offer or heavily discounted?
Once you understand more about these low maintenance, high profit VIP customers, you’ll be able to market to them more effectively. Like any other customer segment, you can tailor your marketing messages appropriately, promoting the products and services best suited to their needs. Knowing that they’re more likely to spend more with you (and more often) also means you can justify allocating a more significant part of your marketing budget (that you might have otherwise spent on customers who give lower returns).
Bear in mind that your customers will need continual review. Less profitable clients now may have the potential to grow, while big spenders from a particular industry could all be affected by a change in the market. Smart marketers will acknowledge who to give preferential treatment to as well as what customers to nurture.
Download this eBook to learn more about Blue Sheep's Money Map and how to:
- Build longer lasting relationships with your most profitable customers - and acquire new ones
- Discover which customers are costing more to serve than the revenue they return. Sack the 'Avoids'!
- Tailor your marketing spend and campaign tactics to different customer segments