I don’t know who my best customers are
04 January 2022
If I asked you what type of customer is the most profitable for your business could you tell me? And if you could, what would you base that answer on?
If you are answering based on gut or purely the contract value, then you are not working smarter.
And if you don’t have a record of your existing customer relationships (both successful and unsuccessful), then you cannot interrogate that data to define an ideal target customer, their behaviour and characteristics, and then go out and get more of them.
This makes your marketing investment less effective, and you will be less profitable as a result.
Without any meaningful data on your customers, you are limiting your profitability and growth potential. You are most likely over-servicing some customers while at the same time ignoring other customers who offer the greatest opportunity.
You will also not be effective in going out and getting more ‘ideal’ customers because you don’t know who they are or where they congregate. This ultimately makes your business less valuable and means you end up working harder and not smarter.
When it comes to evaluating the profitability of your customers, you first need to define the criteria you are measuring against and have a way of consistently and accurately recording it.
Criteria might include things like:
- Contract value (obvious but not always the best indicator)
- Opportunities for repeat business (life-time value)
- Ease of access and delivery (cost of acquisition)
- Cost of servicing (cost of sale)
By using a combination of measures, you will identify and define your most profitable customers and not just the customers with the biggest individual contract value.
Then once you have categorised your existing customers the challenge comes with what to do with the ones who you define as unprofitable. This is a decision the business should take on a case-by-case basis. But if you want your business to be more profitable and easier to run you will need to make some tough decisions based on the information available.
But this is not just about identifying your existing unprofitable customers, it is also a way of defining and targeting future customers that will be most profitable for your business.
By having a clear criteria you can measure against means you can identify target customer segments you want to work with and direct your marketing and sales effort towards recruiting more of them.
If you are interested in how to work smarter, then why not book a free, no-obligation call to find out more.
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