6 Ways to Identify Your Most Profitable Customers

6 Ways to Identify Your Most Profitable Customers

As we mentioned on Monday, if you already have some clients, it can be beneficial to find the most common characteristics across the most profitable of these. You can start to create a picture of who your ideal customer is.

Customer equality

Customers are not all equal. It is important for every small business to identify its most profitable customers. But not for the reasons you may think. Figuring out how profitable your customers are, can help you grow every facet of your company. You want to discover who your most profitable customers are. These won’t necessarily be the ones who spend most money either! Some of your customers who spend most money won’t be profitable, as they may have negotiated heavy discounts or might require more customer support. The most profitable can sometimes be the customers who spread the word about your company and act a little like brand ambassadors. Salesforce have their MVP (Most Valuable Player) program, where they reward contributors within the Salesforce community for their expertise, leadership and most importantly for Salesforce, their advocacy.

So how can you get started? The following are a list of six of the most important ways to identify your most profitable customers, those that drive value, and don’t detract at the same time.

1.    Continuously analyze your client data

You should get to know your ten best customers as soon as possible. Perform an analysis of your customer base, and find out who is providing you with the most profits. Once this discovery is made, it is important you don’t become complacent. By continually focusing on the same ten customers you may miss the point where they lose profitability and a new ten emerge. Therefore, it is important to continuously reassess your customer base. That way you can have an up to date ‘A list’ of clients!

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2.    Use CRM tools to predict future revenue

You can now manage your sales pipeline within your CRM to predict future revenue. It is possible to see which customers are your most profitable and loyal.

3.    Don’t spend time chasing the wrong potentials

It makes sense for small companies to chase after the big accounts, in order to get big contracts with long duration. However, a company should analyse their numbers and find out where their real revenue is coming from. If the most profitable sector is indeed these large clients, then these should continue to be the target. However, in many cases, a larger number of smaller clients drives business and produces continuous revenue. Once identified, you can align your strategy to focus on these smaller clients, to maximize revenue. Of course, it can still be important to go after the big fish.

4.    Track the cost of servicing each client

Most businesses do not charge by the hour for customer service time. It should however, be possible to determine how long is spent making sure each customer is taken care of adequately. Some clients will have more trouble than others, and this needs to be taken into account when it comes to customer valuation. Establish a method of tracking service time, and see who is incurring most cost, and what you can do to change this.

5.    Become familiar with customer life-cycles

Analyse your most valuable and profitable customers, to identify key profile and behavior characteristics that are predictors for lifetime value. This way you can identify at an early stage which clients are most important for you and you can align your strategy towards keeping these customers content. You can also start to target potentials which fit this identity so that they may also become valued clients.

6.    Apply the 80/20 rule – a Pareto Analysis

According to Living Life the 80/20 Way by Richard Koch, the following are true:

  • 80% of your profits come from 20% of your customers
  • 80% of your profits come from 20% of the time you spend
  • 80% of your sales come from 20% of your products
  • 80% of your sales are made by 20% of your sales staff
  • 80% of your complaints come from 20% of your customers

This is the Pareto principle, and is applied in a rule of thumb fashion. Many businesses can increase profitability dramatically by focusing on their most effective areas, and eliminating, or ignoring the less effective areas as appropriate. Profitability is a function of how much was expended to achieve profit, not just the revenue itself.

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