How valuable is your customer base? How best do you maximize the opportunities within and where do you invest your time as a small business owner.
This article explores why it’s important to realize the value of your existing customer base. How you can quantify the value of each customer and why a realization that not all customers are equal could result in greater customer satisfaction, saving your company money and ultimately improving profits.
Understanding Customer Value
To begin, you need to divide your sales into 2 channels. Revenue and cost from base sales separate from revenue and cost from new sales.
The number is not just the annual sales you make to the customer minus the cost of the product but you need to also calculate the cost of sales, which includes the cost of advertising, promotional activities, your website, sales force costs, discounts and incentives.
Then segment your customers in a grid like this
Customers in the high cost to serve and low sales might be the customers that you ‘fire’. Whereas the customers in the high sales and low cost to service should be treated like there are chickens laying golden eggs. Obviously you’d like as many customers in box #1 as possible but this is a one dimensional scale. What happens if you look over time? How many customers moved from one position to another? How many customers went somewhere else?
Separating your sales into base and new allows you to better focus your sales and marketing.
For instance when you look at and investigate the #9 bucket of new customers, you might realize that your service and pricing structure might need to change, or you need to focus on or exclude yourself from an industry or territory. Just as when you look at an investigate #1 bucket of base customers, you might realize that you are not paying enough attention to them or providing adequate service.
Communication
Everyone in business says ‘Listen to your customers’, but even the largest companies seem to ignore the most obvious ‘action’ feedback of ‘silence’ followed by lack of orders. Furthermore in the day and age in which phone conversations are harder to come by and loyalty isn’t what it used to be, you need to step up customer service, your customer’s experience and technology.
The hard part of analyzing information from your business system is that it is great at reporting what happened but often it is trickier to report what didn’t happen.
Handling complaints effectively every time is serious and important and requires a formal process.
Its always a good idea to ask for your customers feedback. Introduce the concept of continuous improvement and not only will you get feedback but also dialogue and relationships.
Dynamics CRM
Introducing software like Dynamics CRM enables you to measure performance, manage complaints and improve customer service. Check out this short video on Managing services cases or this video on Sales Analytics