Customer Profitability: 7 Tactics You Need Now!

Are you maximizing each customer’s profit potential for your firm? Do you know how your customers stack up in terms of sales and profitability?

If you’re not sure of the answers to these questions, there’s a good chance that you’re not maximizing the effectiveness of your marketing resources because you’re not spending enough money on your best customers and wasting money on the unprofitable one. (Here’s some help calculating costs.)

Once you’ve segmented your customer base in terms of profitability, apply these seven tactics to ensure you’re making the most of your customer investment.

  1. Improve your relationship with your best customers. At a minimum, acknowledge these top customers. As a general rule of thumb, they comprise about 20 percent of your customer base. Further, these shoppers tend to refer other good customers. Use special touches to delight these customers and humanize your relationship with them. For this segment, it’s about how you treat them that counts. Some firms create special elite customer programs. Before you take this step, carefully assess the costs. Once you start, you may find that the cost of maintaining it is high.
  2. Enhance marketing and engagement with your second-tier customers. Many of the next 10 to 20 percent of your base have the potential to become your best customers over time, especially since the actual composition of your top tier changes (while the percentage remains constant.) To encourage this group, develop tailored programs to make them feel special without sizably reducing margins. At a minimum, use different messaging or service. Bear in mind it’s how your customers perceive you’re treating them that counts!
  3. Continue promoting the main portion of your customer base. This segment is your great silent majority and comprises about half of your customers. Unless there’s a change in either your offering or their circumstances, this group of customers will continue buying for the same reasons they’ve bought in the past.
  4. Proactively manage bottom-tier customers. You need to engage with the bottom 10 to 20 percent of your customer base to find out why they haven’t bought from your firm recently. You want to know what’s changed that caused them to stop shopping from your firm. You need to know whether they only bought a gift or had a bad experience with your company. In today’s social media world, disgruntled customers can translate to high profile PR problems. Therefore, develop plans to either market to or drop these customers based on their issues. Remember, it’s critical to ameliorate any customer service issues, especially since this can create great customer advocates.
  5. Install win-back programs for customers who are still profitable but no longer active. Realize you may need to make these customers an enticing offer to get them buying again. So it’s helpful to test different offers. I’ve successfully tested welcome-back offers with incentives. These customers are worth your marketing investment since you already have their contact information and they already know your brand. As a result, acquisition costs for this segment tend to be lower than for totally new customers. Additionally, each customer who’s won-back has a second customer lifetime value.
  6. Drop unprofitable low-end customers. This segment isn’t worth spending additional marketing resources on since they won’t yield acceptable returns. Bear in mind that these customers may have been profitable buyers at one point but are no longer interested in or need your product. Inertia may be the only reason that’s keeping these promotions going. Before you stop marketing these customers totally, check whether you need to notify customers that you intend to stop servicing them.
  7. Assess non-buyers. While this group isn’t part of your customer base, many marketers include them here. Remember it’s important to continually add new prospects to your housefile, but you must determine how long and how frequently you should market them before you remove them from your list. At what point do you reduce your communications to these prospects and when do you stop communicating all together. While with email, the cost may be low, you need to consider how these names may be affecting your email metrics.

When it comes to maximizing your customer profitability, understand that not all customers are created equal. To ensure you’re not leaving any profitable customers behind, understand your customer dynamics and segment your house file in order to tailor your message to meet customers’ needs and potential.

Do you have any other suggestions for maximizing customer profitability? If so, please share your suggestions.

Happy marketing,
Heidi Cohen

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Photo credit: LaLunaBlanca via Flickr

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