Being in a position to focus on your most valuable customers might sound like a luxury. After all, many small businesses are grateful for customers of any kind. But every business finds that some customers are more valuable than others. This can be for a range of reasons—from the size of their purchases to the relative ease of managing their accounts. Successful businesses are generally those that identify these customers, build relationships with them and work to bring in new customers with a similar profile.

We have previously established that today’s retail climate is extremely competitive, with customers increasingly switching between brands, favouring discounts and conducting extensive online researches. In a consumer-driven market with less brand loyalty, how do businesses ensure that they are engaging with customers that are most likely to deliver maximum profitability?

The best way to increase profitability is to drive sales with customers who already spend the most. The question to then ask is how can businesses utilize their data to gain marketing insight to help target, attract and engage with their most profitable customers?

Customer segmentation

To gain an understanding of who your most profitable customers are, you first need to profile your customer base—who they are and what they look like. Customer segmentation is a means of grouping your customers into shared characteristics or traits. This could be by socio-demographic factors, or sales behaviour, but ideally a hybrid of the two.

Once you have a picture of your different customers, you can analyze who (type of customer) is buying what (products, value, frequency) and which segments of your customer base are spending the most. Utilizing this insight, customer segmentation provides the means of driving more targeting and informed marketing communications that will build customer loyalty and therefore customer lifetime value.

[READ MORE: A guide to identifying your profitable customers and improving your sales (1)]

Align spend and resource to potential value

Understanding the profile of your highest spenders enables businesses to align resource and spend in proportion to the opportunity each segment has to offer. Businesses that can prioritize resources are more likely to be able to provide better returns on investments by concentrating on pulling in the right type of customers. This could be setting your marketing spend proportionally to the opportunity or profitability which each group offers or reducing the follow-up or sales pipeline on those prospects/customers that do not spend as much or take longer to convert.

Increase the volume of your ‘best’ profitable customers

A profile of your best customers provides insight into who they are, how they live and what motivates or interests them. Utilizing this insight, businesses can implement highly targeted and personalized campaigns to attract, engage and ultimately sell to prospects matching their ideal customer. The more customers you have that match your most valuable customers, the more profitable you will be. Businesses that are able to target and acquire more valuable customers can then concentrate on quality not quantity. Align your advertising, placement and positioning to target your most profitable customers. 

Market Penetration Analysis

A profile of your most valuable customers (and different types of customers) by socio-demographics enables you to map these customers against the population. This is extremely important if you want to find more customers that look like them. Once you can match the profile of your profitable customers against the population, you can then size the potential market opportunity.

If your customer numbers are low in an area with a high density of your ideal customer, you can increase spend to drive sales. Similarly, if you map your existing customers (best customers) on a map and overlay density of your ideal customer, you can see which areas you have low or little penetration. For store locations, this is a necessity to see where you have room for growth. Even online businesses can use this method to understand where they need to build awareness and exposure of their brand.

Customer/product analysis

Understanding which customers buy which products or services is also valuable. If there are specific patterns in types of customers that purchase or use different products and services, you can tailor the messages to resonate with specific audiences. If customers always pay full price or are brand-led, then you do not want to devalue your brand or price point by offering them a discount. These promotions should be saved for the customers that only tend to purchase when they receive offers. Look for patterns and interests in purchasing behaviour, so that you can offer the next item, product or service that you think they’d be interested in — even before they start looking.

The benefits of understanding your customers

To conclude, there are many reasons to identify your most profitable customers. Fairly obviously, understanding your customers will help you to sell more. The more you know about them and their needs, the easier it is to identify opportunities to sell them new products and target them with appropriate offers. Profiling existing customers also makes it easier to find new ones. You can look for similar prospects, and sell to them in a similar way.

[READ ALSO: Why investors should understand the basics of financial statements]

You can use the information you have on customers to improve efficiency. Keeping a central record of customer details and sales reduces errors and speeds up transactions. You can also improve customer service. Better access to information helps you deal with customers more quickly. You can tailor product offerings and provide personalized treatment to your customers. The right information makes it easier to identify and resolve any problems.

Finally, understanding your customers helps your strategic business planning. It helps you predict what your customers will buy, and estimate how much stock you need. Linking customer management to purchasing can dramatically improve profitability and some more!