Why new customers are overrated - and how to spot the best of those you have
Elena Margaria3 minDid you know that it costs five times as much to attract a new customer, than to keep an existing one? Yep, that's right: 5 times more. So you better know which ones are your most precious customers and nurture them, if you don't want to see them leave and go to the competitor!
But how do you identify your best customers?
Let me guess... you said “Looking at the numbers!”, didn't you? Well, you were correct! If there's one thing your numbers know better than you, this is it. But what numbers specifically? Is the revenue enough to distinguish an A-customer from a B-customer? Or there's something else you shouldn't neglect?
The 3 metrics to recognize your best customers
- METRIC #1: Revenue
- METRIC #2: Frequency
- METRIC #3: Average order value
REVENUE - How much revenue does a customer generate during a specific period?
A customer who generates a big slice of your annual revenues may not be by default one of the most profitable (for that you need to remove his costs), but one that generates a tiny slice is certainly not one of your best.
Hence, definitely take into account the revenue generated by every customer, especially as it is no doubt the most immediate way to classify them. But don't stop there: this metrics just helps you make the first skimming.
TIP #1: To identify the customers with the highest and lowest revenue, nothing beats the pie chart. Just select the period that makes sense for your business, and let the slices speak. You'll immediately see who are not your best customers, and have some hints on who might be the best instead.
PURCHASE FREQUENCY - How often does a customer buy from you?
A customer who repeatedly buys from you demonstrates a strong commitment to your products or services, which by no means you should underestimate.
Think about it. How many times have you tried some product just out of curiosity, and then never bought it again? Many times, if you are anything like me. The product was probably just “meh” and you don't even think of giving it a second chance. Well, why should you?
On the contrary, repeated purchases are the most obvious indicator of a satisfied and loyal customer, who appreciates not only your product or service, but also you and your company. So celebrate and spoil him! That customer has a good chance to be one of your best!
TIP #2: To visualize and compare the purchase frequency of your customers, forget about the pie chart and use the bar graph instead: it's ideal for that! Ask yourself “What are the most frequent colors during the year?” and you'll have your best customers in terms of purchase frequency.
AVERAGE ORDER VALUE - How much does a customer spend on average every time he buys?
A customer who buys often, but never spends much is not very valuable. I'm sure you agree with me when I say a much better customer is someone who buys only once in a while but spends a good amount of money every single time, don't you?
Tell me if I'm wrong, but those frequent mini-customers are usually a pain in the ass. Not only they are time and cost consuming, but since they're frequent, they also often demand some special treatment and complain if they don't get it. Plus, they don't think twice when they smell a better price somewhere else.
Your best customers, once again, are those who are loyal, and buy from you regardless of incentives. They quietly make big purchases, which is why they may go unnoticed. Keep an eye for them, and once you identify one do whatever it takes to not let him escape.
TIP #3: To spot the customers with the highest order value, use the area graph. The thicker is the stripe of a customer, the better it is. And remember, don't mind if for some month there's no stripe. Frequent doesn't always mean good!
Your numbers speak
We all know it: the customers are not all the same. Use these metrics and tips to have a quick understanding of yours, so you know exactly where to focus your efforts. And keep in mind, the best customers are not necessarily the ones with the friendliest faces! Often times, it's just the opposite. And your numbers know this well, so don't ignore them!
If you're wondering what other insights your numbers hide, download the free mini guide below. You'll learn the right angles from which to look at them, so you get exactly the info you need.
