Know Your Best Customers
You don't need fancy software to analyze your customer base in hopes of bringing in more sales. Here's how to do it on your own.
Larger companies use software focusing on customer relationship management to discern the profitability of their customers; that is, how much they spend and how much profit the company derives from those sales.
Although it's easier than ever to use such software, small businesses can turn to other more economical methods to analyze their customer bases and determine which ones are profitable and which ones aren't. Such an analysis can help you decide which customers you should focus on and those to whom you should consider saying goodbye.
Segment your customers
Ray Silverstein, author of The Best Secrets of Great Small Businesses, manages peer advisory boards for small businesses. He recommends dividing customers into three categories (A, B and C), not unlike the way airlines divide customers based on the fares they pay and how many miles they fly each year.
However, you need to think about more than sales. How demanding are the customers to work with? How frequently do they increase their orders? "The classifications can be extremely subjective," Silverstein notes, but they require that you have a holistic sense of your interaction with your customers.
According to Silverstein, the A customers typically represent 20 percent, Bs 30 percent and the Cs the remaining 50 percent. The As are solid customers (or even prospects) for whom you're happy to extend extra service. The Cs are those for whom you provide what he calls "reasonable, though not exemplary, service." You don't want to get rid of them, but they're never going to bring you much profit.
So who are the Bs? They're the ones who think they are A customers, but aren't. They're demanding even though they are not your best customers, Silverstein says. They pay their bills late, which requires additional administrative staff time. They return merchandise more frequently than others.
Prioritize with your staff
Once you categorize your customers, it's important to communicate these rankings to your employees. You don't want your staff bending over backward to help a B customer who is never going to return the favor. This means helping employees understand how each customer contributes to overhead, and even track the time spent resolving problems.
Jonathan Stark, a software and business consultant, suggests considering the qualitative side as well when categorizing customers. "The health of a business has as much (or more) to do with qualitative measures as it does quantitative. Some customers are so unreasonably demanding that the amount of money that they spend with you does not offset the negative emotional impact of their abusive behavior."
Stark recommends a regular perusal of your customer list to identify any customer whose calls or e-mails drive you or your staff crazy. "This will drastically increase morale and leave you with the capacity and resources to acquire new customers that treat you with respect."
By learning more about your customers, you will be able to identify the most profitable ones and which ones have the most potential for future growth. Once you start tracking their buying habits, you'll be able to see which relationships are fading and who you should be targeting more aggressively.
After you determine who your best customers are, you need to figure out what motivates them to buy. Then, you can offer occasional incentives to reward their loyalty and to make it worth their while to buy even more. By doing this, you'll increase sales, find customers through referrals and lower your marketing and customer acquisition costs.
Also In This Issue
- Manage Finances Faster and Easier With Online Banking
- Run your business's day-to-day finances and manage your bank account with ease and convenience, thanks to online banking.
- Social Networking
- Try these online tools and see if you will gain new business opportunities.