Are all Customers Created Equal?

The answer is a resounding NO!

This question haunts businesses of all sizes as companies try to figure out who their customers are and more importantly, who their best customers are. 

However, there are many types of customers. You have new customers, old customers, former customers, recent customers, frequent customers, and best customers.

The generally accepted business rule (Pareto’s Law) that 80% of your profits will be generated by 20% of your customers, screams at businesses to find and know that small (but golden) percentage of customers.

How do you identify your best customers?

A business must create a ranking system for customers that works for them. There are several approaches and while it is not a science, it has to make sense for the specific business.

When choosing a ranking system keep in mind that new customer segments may not have the initial numbers but may represent a new direction for the future. These may need “best customer” attention.  

Possible ranking criteria:

Ø    Past and present customer profitability

Ø    Net sales dollars (revenue less returns and service costs)

Ø    Number of different products purchased

Ø    The number or purchases in last (week, month, Year)

Ø    Life Time Value (LTV) – repeat customers

Ø    Most recent customers

Once you have created at least a crude ranking system you can then:

Ø    Create an A-list of largest and most profitable customers

Ø    Create a mini profit and loss statement for selected customers

Ø    Define what the ideal customer looks like (sales service level etc)

One place to start is to break the best customer base into groups with known characteristics. Then compare customers separately and against the segment as a whole. Try to isolate characteristics to find the best of the best. If one characteristic shows a higher percentage of recent and frequent customers in comparison with other characteristics, you may decide to focus your attention on the more profitable characteristic.

Once a basic ranking is created, an important question can be asked:

How was a best the customer acquired? Are they coming from the same place (websites, referrals, telemarketing, cold calls)?  This could be very important to future marketing efforts.

Seek customers that fit the “best customer profile”. Ranking keeps things in perspective.

Ø    Focus on best customers

Ø    Make an accessible list of top customers and prospects

Ø    Uncover preferences of best customers – be a detective 

Start small and look at top 10 customers.

 Questions:

Ø    How did you hear about us?

Ø    What product or service are you mainly interested in?

Ø    How are buying decisions made?

Ø    Did you look at any other alternatives before choosing us?  

Ø    How would you rate our products, customer service?

Ø    What would you most like to see from us in the future?

About the author: Chuck Wallin is a 20-year IT and business consultant with an MBA. He has done work with such companies as Barnes and Noble, CHASE, Arrow Electronics, and First Data merchant services. His web site www.thecustomerconcern deals with issues of Customer Relationship Management.