Value Your Customers – In More Ways Than One

The most successful businesses are one’s that recognise the value of their customer base and exploit that value most effectively.

All too often businesses, especially small businesses, spend most of their sales and marketing time and money trying to find new customers, not realising the value of the one’s they already have.

This article explores why it’s important to realise the value of your existing customer base. How you can quantify the value of each customer and why a realisation that not all customers are equal could result in greater customer satisfaction, saving your company money and ultimately improving profits.

Customer Value

How much are your customers worth? Strange question? Well, think about it. You know, often instinctively, that some customers are worth more to you than others – they buy frequently, big-ticket products, through low cost sales channels, they are happy with the service and products they receive and so they recommend you to others. Clearly they represent better value to your business than customers who have bought once, having been attracted by expensive advertising, and who insist on seeing a salesman before they sign the order.

Have you quantified all sales costs and calculated the gross profit each customer represents to your business? Possibly not, but it’s well worthwhile doing. If it’s difficult to get down to an individual customer level in your business think about ‘types’ of customer rather than individuals.

Multiply the annual sales you make to the customer with the gross profit you make on each product they buy
Calculate the cost of sales, including the costs of advertising, promotional activities, your website, sales force costs, discounts and incentives.

Take the costs away from the profit on sales to give you a gross profit figure.

If by this stage you’ve started to get concerned about the degree of detail you might need to go into look at it another way. If you have thousands or even tens of thousands of customers you may prefer to start with a simple segmentation approach. Looking at value in terms of sales vs cost to sell on a simple 9-point grid.

Customer Value Segmentation

Without even looking at the detail it is obvious that you want as many customers as possible in box 1 – high sales value and low cost to serve, and as few as possible in box 9. In fact you might seriously consider divesting yourself of box 9 customers, perhaps through service or pricing strategies.

Once you’ve obtained a better understanding of customer value on this one-dimensional scale you need to think about the impact that TIME will have.

So, the next thing to consider is – what is your customer retention rate? Or to put it another way how many customers do you lose each year?

If you know your retention rate and your cross sales rate what are your objectives in this key area. And if you haven’t set quantifiable, SMART, objectives you should.

As if you need any proof that this is worth doing here’s a finding from a recent QCI/Royal Mail report on CRM:

“Cutting the customer defection rate from
15% to 10% can double profits."

Plug the Leaky Bucket

Once you’ve understood the value of your customer base, try quantifying the cost to acquire each customer, which is another way of looking at retention. Before any business starts spending money attracting new customers it’s essential that you understand your retention rate and do everything you can to retain the right kind of customers. Its all very well having large numbers of box 1 customers (high value, low cost to serve) but if this is the area where you face most retention issues then you really do have problems.

It goes without saying that the types of marketing activity that you’d use to attract customers could be very different to the tools you would use to serve existing customers – whilst the first could all be ‘talk’, the second will rely far more heavily on ‘action’.

It’s often cheaper to market to existing customers – it can cost between 5 and 8 times more to attract a new customer than it does to keep an existing one. Have you really thought through the consequences of this for your business?

You may need to make some changes:

Firstly, you need a shift in mind set – all too often businesses measure success based on the number of new customers or clients acquired. How many board meetings review the value of customers the company already has and tracks increases here?
Secondly businesses must be willing to invest in the existing customer base. There’s no point spending the entire marketing budget focused externally on attracting new business. Failing to have a marketing focus on your existing customers is a massive mistake. All businesses should have a customer marketing and communications plan as well as the business development plan. In fact the best business development plans focus on new and existing customers.

How to keep valuable customers

If you’ve recognised the value of your customers you’re more than half way there, because you’ve started to put the customer at the centre of your thinking and your business.

Follow some basic customer care principles within your business and you will really start to see the benefits on the bottom line.

Listen to what customers are telling you – in both their words and their actions.

Ask customers for feedback on new ideas, product developments etc. And use your sales force as the ears of the business. Make sure you have a way of collecting the valuable information that most salesmen and women keep in their heads, and analyse and use this information effectively in the business.

Communicate effectively with your existing customers. Send them relevant information about new product developments, or special offers – but remember that word RELEVANT – don’t just send the same message to everyone – target the message and be as personal as you can in the way you make it relevant to their business.

Handle complaints effectively every time. Train all of your staff to treat complaints seriously, and make sure you have a good process for getting complaints resolved quickly. Does the Board look at complaints figures and causes regularly – they should otherwise how will you know what problems customers are facing in doing business with you?

Redesign and Repackage

And if you want to be truly customer centric you might consider redesigning, or repackaging the products or services that you offer to deliver what the customer values most – and it’s not always money and discounts. In today’s fast moving, 24-hour society, convenience, speed and reliability are often valued above discounts and low cost.

Value your customers in two ways:

By understanding their value to your business
By showing them that you value their business

And watch the results speak for themselves.

Article written by Teresa Harris, Second Opinion Marketing. Teresa is an independent marketing consultant specialising in communication solutions and the customer experience. To contact Second Opinion Marketing call 01789 740396 or email tah@secondopinionmarketing.co.uk.

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