"All animals are equal, but some animals are more equal than others"
May 4, 2022
By Kirsty Grant, Marketing Specialist
Perhaps George Orwell was also a marketer because anyone working with customers or clients will tell you they are not all equal. One of the quickest ways to grow your bottom line is to ensure you only invest in acquiring and retaining good customers. It has the two-fold effect of reducing the cost of acquiring customers and the customers you acquire are more likely to have profitable and sustainable relationships as well as becoming your brand advocate.
For most businesses, it’s pretty easy to identify those customers that are not ‘ideal’. If you’re not sure, just ask the team member who manages invoicing or customer service or after-sales! The value these customers have (or don’t have!) should not only be measured by the amount they spend with you or what they cost in servicing. At a time when skilled labour (or any labour tbh) is in short supply, the last thing you want is demoralized team members, courtesy of a few difficult customers.
Applying a consistent and business-relevant approach to understanding the relative value of your customers will guide numerous strategic and operational decisions as well as improving financial performance. While it will depend on the data you capture in your business, even a basic scoring system can add significant value. It is important to note that we are talking a comparison of customers – one against the other – it is a relative measure.
The ideal scoring system takes into account:
You can make the scoring system as complex or simple as you like. You can also weight the factors or overlay attributes like Share of Wallet (SOW), Headroom and how long they have been a customer (would only recommend this if you have access to an analyst or data modeller). The main thing is to create something that works for your business, is durable and gives you the ability to love those high value clients, nurture those medium value clients and maintain low value clients in a cost-efficient manner. Many businesses operate an A B C ranking only using annual sales, defining each ranking using natural breaks or tiers in the sales data.
Use your purchase cycle and sales patterns to inform when and how often to score your customers, although annually is the norm. For example, if you are selling high-end chocolates, where sales peak at Easter, Christmas and Mother’s Day, annual scoring allows for seasonal fluctuations.
So just to recap, not all customers are equal. Use relative value scoring to help you target great prospects, without the ‘spray and pray’ approach. Spend money onboarding and loving them. And for those customers that query every cost and drive your customer service people around the bend, maybe it’s time for a Dear John letter or to remove them from your newsletter list.