Most marketers spend a lot of time determining what the right customer is, and to be fair, identifying your target audience is extremely important. However, a lot of businesses don’t go on to figuring out who their best customers are. Sometimes there’s assumptions about that, usually ones that are attached to dollar signs. However, it’s important to understand that identifying your best customers can actually involve a lot more than that, and figuring it out needs to be data driven. That’s why today’s post will talk about how to identify your best customers.
Take a look at each question you must answer to identify your best customers carefully and consider what your team is actually doing to make sure you’re maximizing the relationships you have with truly good customers.
1: Which customers spend the most money with your business most consistently, and what kind of time frame is that in?
It’s easy to think that a customer that makes big purchases is one of the best customers, and thus worthy of your resources. However, how often are they making those purchases? When considering the answer to this question, set up a time frame (or set of time frames, for instance, representing seasonal effects) that’s meaningful to your bottom line, then consider these further questions:
- Are their purchases defined by particular seasons or events? Has marketing to them outside of those contexts resulted in purchases, or do you only see results in those time periods?
- When was the last time they made a purchase? If it’s been years, why aren’t they buying from you anymore? If their needs no longer align with your offerings, is devoting resources to them going to recapture them?
- Have they made more than one purchase? If not, is it clear that you value their business, and is it clear why your business offers them value worth paying for?
- How much are you spending to retain this customer, and are you sacrificing focus on profitable customers for fear of losing a supposed big spender?
2: Which customers purchase from you most frequently?
This information can be easy to overlook, especially if you feel the purchases they’re making don’t seem to be worth much individually. After all, most people define a “good” customer with the Pareto Principle, i.e., the 20% of customers who drive 80% of the revenue and profits. Yet even these small purchases can add up pretty quickly both in revenue and percentage of your business, and frequent purchases can add up to a fairly strong word — loyalty. These customers should be considered leads that haven’t been nurtured to their full potential.
Here’s a few questions to determine the next step for former customers:
- What’s preventing these customers from spending more, and does that mean they shouldn’t be considered good customers?
- Are there solutions you should be offering them, or are their needs outside the purview of your business model?
- What can your team do to give them a reason to spend more with your business?
3: Which customers only make purchases when they have access to promotions or coupons?
Considering what we mentioned above, coupons and similar types of promotions are excellent ways to attract new customers, recapture lapsed customers, and reward current customers. Promotions like this require balance, and without it, your business is going to learn the law of diminishing returns the hard way. What you may not realize is that this can extend beyond the coupons themselves to the customers they attract. It’s time to ask yourself a few more questions about these customers:
- How regularly do they come in, i.e., is your business offering too many promotions?
- Are you conditioning your audience to expect coupons?
- How large are the purchases they make, and is it consistently enough to cover the revenue lost to the promotion?
- Are these customers offering you any intangible benefits with major effects on your business, such as steady reviews or referrals, and are these benefits predicated on others getting those same discounts or promotions?
- Do these customers actually result in profits, or are they costing your business money?
4: Which customers make the full-price purchases most frequently?
Making full-price purchases is a sign of a good customer, but it could also be a sign that they didn’t time their purchase to a discount for one reason or another. Frequent full-price purchases, on the other hand, are a sign of a great customer. It means they value the quality of your business, from products to sales and customer service, in such a way that they’re willing to pay for it without a promotion. These customers should certainly be on the short list for identifying your best customers, but here’s a few more things to consider:
- Are these customers engaged with your business in a valuable way i.e., upselling and cross-selling to them should be successful, and is your sales team following up on that?
- How large are their purchases, and if your business doesn’t require full payment up front, how quickly do they follow through on their payments?
- Do they leave reviews and make referrals, and if not, why not? If so, are you using these to refine the understanding about why they buy from you?
- Have you developed behavior and intent profiles that maximize your ability to market to other customers like them?
- What strategy do you have for retaining them, and how do they impact the revenue from these customers?
5: Which customers (current or potential) are actively searching for your products and services?
If you read this question and consider it an aspect of target segmentation, you’re not wrong. However, once you’ve identified a consumer segment you want to tap into it doesn’t mean your job is done. Understanding the behavior and intent of your target market is imperative to ensuring your brand stays relevant to them, and conversely, that this segment remains relevant to your business. Remember that the consumer journey has changed, and that customers are educating themselves about the products and services they want or need. So consider these questions next:
- Are you chasing a customer segment that no longer aligns with your business model? If so, is it because your business offerings should be changing, or because you need to adjust your targeting?
- Are you pursuing new customers that do align with your business offerings?
- On the fragmented path to purchase, does your marketing adequately reach out to customers on meaningful touch points to lead them to your brand? If not, what is your ad spend going towards instead?
6: Which marketing channels are actually influencing high conversion rates?
Here is another question that ties in to your segmentation and targeting process. It’s all too easy to give credit for a sale to the last touchpoint before purchase, but attribution needs to be given to all the touchpoints on the fragmented path to purchase. In conjunction with determining your best current customers, you can get an idea of how customers are actually moving through that path to your brand. This lets you more accurately predict where you’ll find more of your best customers. Here’s more questions to consider:
- How many touchpoints are needed to complete a conversion, and what role do they play in your business strategy?
- Do you understand the full impact each touchpoint has on your revenue, and what’s more, on your profits?
- Does a particular channel attract customers that are only interested in buying from you when there’s a promotion, or is it attracting qualified leads that will result in profits rising? How much are you devoting to this channel?
7: Why is there a product/market fit?
You already know that product/market fit is vital, not least because it means at least 40% of your target market values your offerings as virtually necessary, which gives you a basis to thrive. It’s more vital to a startup, which could well be dead in the water without it, whereas more established businesses may relegate it to marketing or risk management. However, it’s not just about finding the right fit — it’s about why it’s a right fit. It’s more than just favorable market conditions combined with a good audience. So consider:
- How qualified is your product/market fit, and what data supports this?
- Is the solution you’re offering your customers only short term?
- What do customers value from your business, and do those customers offer your business value in return?
- How sustainable is it for your business to advertise to that market, and is that market large enough to truly support your business over time?
- Can the reasons behind this fit be applied to other markets, giving your business room to grow? Can you test and review the potential?
Is there a question you must answer to identify your best customers that you didn’t really have an answer for, or that it’s been a long time since the last time you answered it? With these questions at your disposal, it’s time to develop a process for how to identify your best customers that most accurately meets your business’ needs. Identifying your best customers this way will help you take a fresh look at your business plan and marketing strategies, and work toward aligning them with what’s actually working for your business. Just take the German mail-order company Otto Versand as an example to follow — it effectively uses data to predict whether an individual will respond to a particular mailing with an astonishing 80% accuracy, which resulted in North American revenues climbing 12.6%, even in a hostile retail climate. How would your business improve if you understood your customers so well?