We all know that there are some customers that are worth more than others. It is something we often do not like to talk about, but it is the reality.
Not all customers are equal. This is about how to identify your awesome customers – the ones that are profitable and promoters of what you do. By applying a customer centric approach we’ll see the value of the customer portfolio is driving the value of the business.
Likewise, when organisations say they want to grow, what does it mean – more customers, more revenue, more profit..? All too often it is the sales imperative “go acquire new customers” and the team is incentivised to get more customers/sales. So new customers are brought into the organisation’s customer portfolio, only to have the average Customer Lifetime Value reduced, and average retention reduced. Not good enough.
Customer portfolios and business growth
The customer portfolio is made up, on average of some profitable customer, and some not so – so why not understand what these profitable customer look like, and acquire more of them. Simple, the value of the organisation’s customer portfolio them increases, smiles all round.
Unfortunately when it comes to acquisition we tend to have too many assumptions in who we want to acquire and all too quick to go to a solution, such as getting passionate about the channel or the execution. There are many problems with sales today and one of them is that we focus on sales growth with any customer, rather than the right, or optimal customers. Profit by Design also discusses this topic.
Let’s put some attention into getting to know our awesome customer.
This idea is backed by what I refer to as Two-Way Value. This is where we find customers within our portfolio that have really responded to our value proposition. They like our products and services and buy more. However these customers are often not seen by the organisation – all the noisy, demanding customers are the ones we know best.
Working with financial services we found the attention was on the high net worth customers. Which seemed like a great approach, but there are not that many of them within the customer base. We looked deeper to find mid-level-income customers that represented significant value.
These customers had purchased multiple products, were using services that reduced the cost-to-serve, retention was a good 15% higher than the average. They were quiet advocates going about their lives, influencing friends and family. With retention higher so was the customer lifetime value.
The value exchange between the business and the customer was mutual. There was a Two-Way Value exchange that the customer valued, that benefited the business, but these customers were well under the radar of the financial services business.
Actions to take when you know your awesome customer
Acquisition criteria, across the business was changed and new customers being brought on-board needed to match the profile of the customers that were more valuable. Cross selling activities were then prescribed to re-align existing mid-level customers towards the new profile.
The end result is a customer portfolio that you have chosen – not one that happened by chance. Knowing what our awesome customer looks like will help us build a customer base that is of more value to the business. And perhaps more importantly, delivers value to the customer. More customers receiving true value, means more advocacy from these customers to like minded people.
The principle of looking for the Two-Way Value is a constant. I recently worked with a software business selling into the construction industry. The allure of the big customer was clouding where the real value was. The big customer would have a sales cycle of around three months, and demand a lot more from the selling business.
However, we found the two-way value was (again, coincidentally) with these mid-sized businesses. Shorter sales cycle was a better match for the selling business. And that led to higher retention, lower cost to serve, and strong advocacy. This is essentially taking a customer centric approach, rather than a product approach.
The moral of the story is to know your awesome customer. Then apply your sales and marketing efforts to acquire these customers only. The end result, a more profitable customer portfolio, higher advocacy.