The transcript below and video above were created for my blog. You can find the original post here: Customer Profitability Analysis
Hello and welcome to this week 30 minutes marketing, this week I will go through the Customer Profitability Analysis.
Do you agree that 1 great customer is better than 9 bad customers?
Me too, and with today's video you will learn how to determine who your best customers are, and how to get lots of them. For that we will need to cover Customer Profitability Analysis. Costumer Profitability Analysis helps marketers and business owners understand the net profit coming from each individual customer.
The Customer Profitability Analysis, consists in the individual customer net profit, or in other words the revenue minus all the costs and expenses associated with that person, that customer. This analysis helps businesses owners understand which customers bring more profit to their company. This knowledge it is extremely valuable because it will drive the company profit up.
Let me explain how:
Imagine that you run a spa. After analyzing the customer profitability for each one of your regular customers you have decided to divide them into 5 groups:
5 Stars Customers, 4 Stars Customers, and so on until the 1 Star Customers.
Your 5 Star customers are your best customers. You came to the conclusion that 20% of your customers belong to this group, and that they drive you 80% of your profit. Do you wish that all your customers were like them?
To have all your customers at the 5 starts group it is going to be difficult if not impossible, but now that you know: who your best customers are; how important they are; and what are their characteristics; you need to invest your marketing dollars in two things:
1-Keeping them happy and coming back;
2-Finding other potential customers with the same geographic, demographic, & psycographic characteristics as them. Example: Lets imagine that you came to the conclusion that your best customers are women that live in a 500 meters radius of your spa, that work in sales department of big corporations. After understanding this through your customer profitability analysis, you should start finding emails from ladies around your spa, that work in sales department of big corporations, and email them an amazing offer inviting them to visit your spa.
Just imagine that with this effort you manage to double the number of these prime customers!!!
Another way, and many times a smarter way to drive new 5 Star Customers, is to analyze your 4 and 3 stars customers and think of what kind of activities or special offers you could implement that will move them to the 5 stars group. To approach your existing customers and turn them into excellent customers of your products is sometimes much easier and cheaper, than drive completely new customers to your door, as you already have a direct contact with them.
For last, the 2 stars and 1 star customer I suggest you to leave them alone and don't spend marketing dollars with them. Many times when customer profitability analysis are calculated, business owners understand that their worst customers are actually not profitable.
Because, when they calculate their net profit in detail, by deducting all the costs associated with servicing this group of bad customers, like cost of products, marketing, electricity, etc.etc., this total cost is more than the revenue they brought to the company.
Thank you for watching, hope it helps, and if you want me to keep creating educational marketing videos please support by liking, commenting, and sharing below. Thanks and Cheers!