Who are your BEST customers?


When this question is posed to a small business owner, a sales associate, or a marketer, it often results in a firm, clear answer like seniors, baby boomers, or soccer moms. Or if in B2B circles, something like “mid-market manufacturers of durable goods”. If you then follow with a simple “Great, but how do you know that?” this is where the blank stare comes in, followed by “I’m in the store all day and I greet all of the customers” or “I personally perform all of the quotes for new clients”. So it must be true – you CAN judge a book by its cover!

Wrong – everyone knows that not all soccer moms are created equal!

Data Rules
The reality is that in order to truly understand who your best clients are, you need data. This data can be transaction level data from point of sale systems, historical, summarized sales data from your accounting package, and even third parties in the form of demographic, psychographic, and behavioral data that is appended or added to your customer records. If you don’t have sophisticated systems for collecting and managing all of this data, do not fret for there are some simple ways to get started. And it is important that you get started!

Why is identifying my BEST customers so important?
There are two major reasons why it is important to identify and recognize your best customers.
1. The first is supported by the now mythical adage that “it is cheaper to keep the customers you have than it is to acquire new customers”. This statement has been spewed more ways than I can count and is credited to more sources than I can name, but the fact is that there is truth to these words and understanding who your best customers are enables you to strengthen the relationship and their loyalty through personalized customer service as well as relevant & timely communications and offers.

2. The second reason understanding your best customers is important, is that the insight gleaned from analyzing your current customers can be leveraged to find prospects that exhibit the same demographic, psychographic, and behavioral characteristics, which through deductive reasoning tells us they are good candidates to potentially become one of your best customers. Or in other words, “birds of a feather flock together”. Doesn’t marketing to those with a higher propensity or likelihood to become customers verses marketing to everyone make sense? The cost of acquiring a new customer will improve, contributing to an overall improvement in the return on marketing investment.

Getting Started
Whether you sell directly to consumers or to other businesses, there are several low-cost ways to get started. Assuming you already have a database of your customers and have some access to transactional or historical sales data, below are several approaches that with a little elbow grease will yield great results:

1. Use the Pareto Principle; “Roughly 80% of the effects come from 20% of the causes”. I used to work in the paper business (no, not Dunder Mifflin – but close) and one of the primary sales management tools was the “80/20 report” which simply showed us who our top clients were from a revenue and gross profit standpoint – ie where sales should be spending their time and attention. The inverse was also true – the accounts at the bottom of that report might be candidates for direct efforts to stimulate growth, or even all together pruning. Firing a bad customer is often worth more on the bottom line than landing a new one.

2. Use of a “20/50/30” approach to isolate the “best, middle, and worst” – this is an extension of the above and segmenting customers into three (or more) categories might enable more precise prescriptive actions per segment, drive pricing tiers, etc. My aforementioned experience in the paper business had an answer to this as well – all clients (client being defined as having a minimum number of purchases or a minimum value of purchases in a rolling 12 month window) were categorized as Platinum, Gold, Silver, Bronze and Lead, with new accounts and “up and comers” or those with high potential falling into the Nickel segment. This is a very eye-opening exercise, because depending on the metrics chosen to rank and segment, you may find that who you thought was a great client could be very average or worse yet unprofitable.

3. RFM Analysis (Recency, Frequency, Monetary) – This method will highlight several “groupings” of clients in a stack/rank fashion – see the sample RFM Analysis in Fig. 1 below. This type of analysis is especially valuable since it takes into account multiple factors such how recently a customer purchased, how often they purchase, and lastly how much they have spent. Those that find themselves at the top of this list, should find themselves at the top of your marketing list as well. I employed this method when working with a marketing service provider that focused on small businesses. We were able to create a list of 150 great clients that were on autopilot. By proactively engaging with them we saw an immediate increase of business from this group by simply offering them an incentive to “upgrade” to a higher level service package. They were already satisfied clients, we just needed to give them a reason to show us more love.

Fig. 1 Simplified RFM Analysis

Metrics for all three of these methods might include things like Revenue, Gross Profit, Number of orders, Average order size, and even returns, issue escalation, or other inbound requests. It depends on your industry, but these metrics along with questions like “Do the clients use self-service tools or are you providing full service to all clients?” can provide valuable insight into who your best (and most profitable) customers really are.

4. Product/Service Consumption Matrix – Lastly, another way to slice and dice your customers is to look at them from a product or service perspective to identify the products and services that are consumed by each client and isolate segments based on your ability to cross sell and up sell clients to expand your relationship with them.

Building on your Effort
So now that you have worked on one or more of the above methods for segmenting and ranking your customers, imagine taking a deeper look at the top performers based on 3rd party data like demographics, psychographics, and behavioral data to define the ideal criteria for who you should be prospecting – talk about super charging your marketing efforts. Demographics are things like age, income, home ownership, marital status, presence of children, ethnicity, etc. and can be very telling in and of themselves when looking at who your best prospects are. Psychograhics are more about the underlying motivations, values, interests, and attitudes of people, and these can add another layer of insight in determining a prospect’s intent or likelihood to respond. Lastly, behavioral data is available in many forms. This might be actual click stream data from your website or perhaps licensed data from third parties who aggregate point of sale data by SKU. For example, believe it or not, it is possible to identify individuals who are male homeowners with six-figure incomes, who travel for pleasure >5 times per year, and have purchased golf clubs in the last 6 months.

Sound like a great prospect for a golf getaway… When do we leave?

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Selling to Consumers with Marketing Automation


Previously I used Las Vegas as the backdrop for what I deemed to be sure signs of the coming economic recovery – call it my own “Vegas Consumer Confidence Index”. Closer to home I am witnessing yet another sign that, despite all other indicators, there is compelling evidence that Home Services companies should continue actively marketing to consumers.

The value of Route Density to SMBs who provide Home Services
On most weekday mornings (and some weekends), shortly after 7:00 AM, I am greeted by the hum and thrashing of lawn mowers as one of five (5), yes five, different landscaping crews descend on my neighborhood to cut, edge, and trim every living plant in sight. I do not live in a gated community or otherwise “affluent” neighborhood, which brings these questions to mind:

Question: As American savings rates are off the charts and middle class consumers have cut back on most discretionary spending, what makes Home Services businesses like lawn care or pool cleaning continue to be viable?

Answer: I think this can be summed up by saying that “consumers, regardless of the economy, will continue to pay for work that needs done if the work is either difficult, undesirable, or requires special tools and skilled labor”. I know I fall into this category.

Question: Why are there 5 different companies serving my small corner of the world, when “owning a neighborhood” or having “route density” is not only more profitable for these businesses, but the green thing to do as well?

Answer: Imagine the reduction in fuel costs and transportation time if a crew could work in a single area all day. Way back when I worked for a budding lawn service (I passed on “investing” and now the guy is in early retirement with 25 crews in a 2 county area, but that’s another story) we typically spent our morning in one neighborhood and our afternoons in another. We were able to mow twice as many yards if we could stay put in a single area.

These principles hold true for companies providing any type of service delivered at or in a consumer’s home, whether one-time like decorating, home improvement, or closet systems or recurring like pool cleaning, lawn care, pest control, and housekeeping.

SMBs selling to Consumers can Generate New Business with Automation
In the past, many Home Services crews have been known to put a sign in the yard, blanket the neighborhood with door hangers, or even resort to dropping a clear plastic baggie with a business card and some gravel at the end of my driveway (now that’s bootstappin’). These approaches are all attempting to accomplish the same thing – enter the Utopia of multiple clients in the same neighborhood, and in some cases do a decent job. The rub with these methods are:

1.) With Yard Signs, exposure is limited to only those that pass the house, and is not specifically targeted or personalized. And there is a limited life span – the sign will not be there very long.

2.) While door hangers can be personalized and targeted if a data source is put in the mix, most don;t put forth the effort and door hangers do require some additional effort or costs to have the hangers distributed. A third party can distribute them for a fee likely bundled in the overall cost of printing, or the business can have workers perform this task, but aren’t they better used actually serving customers?

3.) At first glance, the clear plastic baggie with a business card and stones seems like a clever solution since the crew can just drive around and drop the bags on driveways as they pass through the neighborhood, but I would argue that the cost of the bag, fuel, time, business card, and the labor to assemble these “kits” combined with the lack of personalization and targeting and the poor brand image that might result, make this an unattractive option for entrepeneurs with their sights set on growth.

Set it and Forget it
Made famous by Ron Popeil, this direct response anthem for his Showtime Rotisserie Grill has a place in consumer marketing through the use of high quality data and automated marketing solutions. Imagine if each and every single-family homeowner in a neighborhood were to receive a full color, personalized postcard with a compelling offer, within a 2 days of a Home Services crew being in the neighborhood, then several more times over the next few months, long after the crew has left – AUTOMATICALLY. As you know in marketing, with frequency, recall and ultimately response, improves. The mechanisms that support this would be the Home Services business providing the addresses of their customers on a daily, weekly, or monthly basis, from which a mailing list of the neighbors would be produced and queued for automated mailing.

An extension of this concept can be deployed using what we call Trigger Data, such as New Homeowners or New Movers. These segments of the population are ripe for services as they settle in to their new digs. In the case of New Homeowners, they are credit worthy and ready to decorate, fix up, and furnish their new home. I have even seen the use the birth month of a consumer to trigger an automated offer mailing in the month prior. The possibilities are endless!

My favorite is a “have you seen this car” postcard featuring an image of the same make, model and color of a vehicle recently purchased by a neighbor. The card goes on to talk about the low prices, incentives, and the great deal my “neighbor” got at the dealership. Good stuff.

Here is a great video featuring my colleague, MySalesHero, as he helps a contractor apply these principles…

I look forward to your comments or questions.

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