Value Your Customers – In More Ways Than One Devon
Value Your Customers – In More Ways Than One
The most successful businesses are one’s that recognise the value of their customer base and exploit that value most effectively.
All too often businesses, especially small businesses, spend most of their sales and marketing time and money trying to find new customers, not realising the value of the one’s they already have.
This article explores why it’s important to realise the value of your existing customer base. How you can quantify the value of each customer and why a realisation that not all customers are equal could result in greater customer satisfaction, saving your company money and ultimately improving profits.
How much are your customers worth? Strange question? Well, think about it. You know, often instinctively, that some customers are worth more to you than others – they buy frequently, big-ticket products, through low cost sales channels, they are happy with the service and products they receive and so they recommend you to others. Clearly they represent better value to your business than customers who have bought once, having been attracted by expensive advertising, and who insist on seeing a salesman before they sign the order.
Have you quantified all sales costs and calculated the gross profit each customer represents to your business? Possibly not, but it’s well worthwhile doing. If it’s difficult to get down to an individual customer level in your business think about ‘types’ of customer rather than individuals.
- Multiply the annual sales you make to the customer with the gross profit you make on each product they buy
- Calculate the cost of sales, including the costs of advertising, promotional activities, your website, sales force costs, discounts and incentives.
If by this stage you’ve started to get concerned about the degree of detail you might need to go into look at it another way. If you have thousands or even tens of thousands of customers you may prefer to start with a simple segmentation approach. Looking at value in terms of sales vs cost to sell on a simple 9-point grid.
Customer Value Segmentation
Without even looking at the detail it is obvious that you want as many customers as possible in box 1 – high sales value and low cost to serve, and as few as possible in box 9. In fact you might seriously consider divesting yourself of box 9 customers, perhaps through service or pricing strategies.
Once you’ve obtained a better understanding of customer value on this one-dimensional scale you need to think about the impact that TIME will have.
So, the next thing to consider is – what is your customer retention rate? Or to put it another way how many customers do you lose each year?
If you know your retention rate and your cross sales rate what are your objectives in this key area. And if you haven’t set quantifiable, SMART, objectives you should.
As if you need any proof that this is worth doi...