All customers are not created equal. Every business will find some customers more valuable than others for various reasons; whether it’s by the value of purchase, ease of managing the account or beneficial business relationships.
It’s important for every small business to identify these customers as those that do tend to be more successful. Picking out a group of customers and focussing on them may sound like a bit of a luxury, especially when most businesses these days are grateful for any customer they may have. But by being able to identify your most valuable customers, you can make the most out of your sales and marketing efforts by selling more to them and finding similar customers to sell to. Your most valuable customers will be those who act like a free sales force for you by referring more new customers to you and acting as a brand advocate spreading credible, positive word-of-mouth for your business.
Know your true sources of profit
Of course, as a business, you should aim to make all your customers happy all the time but there are ones which you should be investing more time in to please and some that you shouldn’t. The 80/20 pareto rule is a good illustration of this; suggesting that 80 per cent of your sales come from 20 per cent of your clients. You need to recognise that by trying to please all your customers, you may be wasting time on bad ones that could distract you from providing more time and excellence to your better quality customers. A business needs to know which customers should be treated like kings and queens and which needs to increase the volume or value of services they take from your business, or be politely moved on. which can be passed on to competitors.
Big is not always better
One thing to bear in mind is just because a company is big, has a prestigious brand and has the highest amount of spending; it doesn’t necessarily make them your best customer. They may demand a high level of contact, have negotiated margin-skimming rates, personalised delivery schedules and longer terms. Although best practice is to always put the customer first, we should think about the opportunity cost of this customer and whether time could be best invested in other customers who have a similar profitability but take less management. Better to serve customers with more immediate results, longer buying cycles and higher profit margins.
Continuously analyse customer data
You may know your top most profitable customers now, but businesses change every day, what was today, may not be tomorrow. By continuingly analysing your customer data, you can spot changes in your most prestigious customers. Bear in mind that most profitable and most valuable are two separate circumstances, just because they’ve been profitable for you for a long time, doesn’t mean they always will be. Understand your top customers will change over time so by keeping on top of the best customers, you can recognise and make adjustments to customers that fall in and outside of that list.
What makes a customer valuable?
- Buy high margin products
- Pay full price without negotiating discounts
- Small number of large orders rather than many small orders
- Doesn’t cancel or amend orders
- Pays on time, without being chased for payment
- Doesn’t require extensive after-sales service