Finding The Revenue – How To Spot Your Best Customers
When it comes to finding out who your best customers are, the old Pareto Principal is at work again- for some companies their top 20% of customers are the ones who bring in about 80% of the company’s profits.
But How Do You Know Who Your Best Customers Are?
Identifying your best customers is one of the most powerful ways to use your CRM Software as a way to add value to existing business (if you’ve regularly been logging data into your CRM)
To Find Your Top 20% Look For:
1) Customers Who Generate Most Sales
This is a good starting point but it may not be an accurate measure. Depending on your product/service offering, sales don’t necessarily equate to profit. For example in some service industries a particular group of customers take a lot more staff time than others. These customers can tie up a lot of staff resources and not necessarily bring in the most revenues.
2) Customers Who Generate The Most Profit
This may be a more accurate measure, but again like gross sales figures it is by no means perfect. First, both these measures favor long standing customers over newer customers who may have become profitable very quickly.
If your business is concentrating in increasing sales but not making enough of a margin, it may still be struggling. Therefore, you need to be aware of, and track the cost of sales, particularly in terms of staff time to make sure you have a viable profit margin
3) Customers with the Shortest Sales Cycle
This can be a critical factor since the length of the sales cycle affects cash flow. Lead-time is important because you can add in the future value of your customers, rather than just relying on historic sales figures.
To get the full picture of your most valuable customers, you should not base your decisions on information from a certain time period ( month, quarter, year), instead try to establish a lifetime value of a customer.
When analyzing customer statistics pay special attention to:
• Tenure- how long has the customer done business with your company.
• Product Selection- do your customers buy your most profitable products and services?
Sales statistics experts such as Jim Novo argue that for many industries:
• A customer who is a recent purchaser is more likely to buy again than those who have not bought in a long time
• The more times a customer has purchased, the more often they will continue to buy
• The highest spending customers are more likely to buy again
There is no one size fits all approach with statistics. Just looking at the raw stats can be highly misleading if you don’t know your customers and sales cycle. If your demand is highly seasonal- the date from last sale may not be that relevant. If your business is quickly evolving, two year old stats may be quite misleading.
Customer analysis is an ongoing process. You can’t just perform customer analysis once and then be comfortable that you have identified who your best customers are. Rather you need to continuously analyze customer data and modify your definition of your ideal customer depending on how your business evolves.
Good customers can become ex customers, and new ones can rise up to take their place.
To learn how to use data to make better business decisions listen to our Worflow Automation Webinar.
Focus On Your Top Customers
Once you have analyzed the data and identified your most profitable best-fit customers, you can survey them and align your business with what they demand from your company.