In society, we must treat all people the same, but in business the cold reality is that serving some customers is more profitable than serving others.
For instance, some customers might be “low maintenance” and regularly purchase large quantities of product, while other customers might require a lot more effort and attention, despite the fact that they make sporadic purchases. This idea follows Pareto’s Principle, or the “80–20 Rule,” which says 80 percent of a company’s profits come from 20 percent of its customers.
Therefore, it is very important for companies to identify and categorize customers based on profit, and provide service accordingly.
Identifying high-profit customers
Customers that provide the most profit aren’t necessarily the ones that spend the most money, and businesses need to consider several factors when trying to stratify their customers into different value levels.
One big factor to consider is cost. You may notice that a customer who provides a lot of regular business offers much less profit when you consider the added costs they incur.
Monitoring how often your customers order from you can also indicate how much profit they provide. Customers who purchase from you most frequently shouldn’t necessarily be considered ‘loyal,’ but regular sales activity indicates that they will be less difficult to retain, which makes this band of customers very valuable.
Companies should also consider the timing of purchases when trying to figure out their most valuable customers. Those who make purchases during off-peak times can increase their value to your company by filling unused production capacities or because it may be possible to charge them a premium price.
You should also be considering customers’ affluence and brand. Small companies in particular can benefit from saying they do business with a major brand like AT&T or Google. Affluent customers are more valuable because they have the capacity to increase their average order size.
Valuable customers are also those that refer more business to you. Word traveled fast in the past, but now with social media it can move like wildfire. If customers make it a habit of referring other companies to you or posting praise about your company on social media, they should be considered more valuable than those customers who simply make their purchases and say nothing.
Adjusting service levels
Once you’ve identified those customers who offer your company the most profit, you should service and target them accordingly.
Tailor any marketing communications you send out to high-value customers in a way that helps generate a good customer-company relationship. This kind of modification supplies added value for the customer, possibly generating more business from them in the future. Furthermore, marketers can use automated tools to incorporate upcoming relevant events, web analytics information, purchase actions, or other applicable information into individualized marketing campaigns.
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