What can you do as a business proprietor, identify what customers are you spending the longest with, most money and spend the most money on? Have you got a strategy or strategy to identify those who are your “high-value” customers, your “solid as a rock” customers as well as those who “could be better” customers, and also those who are “really there are nothing there” customers? Unfortunately, a lot of small and medium-sized businesses do not have an approach to segmenting customers. This leads to uncontrolled customer interactions, as well as higher levels of customer defection and attrition, and general dissatisfaction with customers. One way to decrease the number of customers who leave your company is to devise an effective customer segmentation strategy. Customer segmentation is an easy task to achieve. Businesses must do a variety of steps to achieve this when they begin, but once you start the process, you will be able to complete the task in a short time.
Know the Margin
It is crucial to know the names of your customers. It is easy to achieve this by printing the names of your customers or entering them into your client relationship management (CRM) software system. After you’ve completed this, you need to organize them into alphabetical order or numbers starting at one and ending with whatever number you can find in terms of your customers. After that, take a look at yourself and ask yourself “do you know how much money you make from each particular customer”? More often than not, you’ll not even know. Unfortunately, many small companies do not take the time to study the customer’s profitability. But, don’t despair businesses can achieve this fairly easily through what’s, in essence, a reverse of envelope analysis. Calculating the back of an envelope is only taking a look at the gross margin you can calculate for each client. It should be inclusive of the gross margin for all the products that you sell to the client. For example for life insurance, home insurance as well as disability insurance a client and you want to be able to include the total gross profit on the three products as instead of the gross margin of the one specific product. Then, you should think about the weighted average or blended average of the gross margins of all of the products you offer to customers.
Know the Hassle Factor
Next, rank the gross margin of each customer against the other customers and determine the most profitable and most profitable customers. Another way to finish this customer profitability test is to go one step back. This is simply the customers and placing them into one of four categories. The categories are “high”, “medium”, “low” and “shed”. The best inquiry to make is “how do you know which category in which to put this customer”? The answer is intuition that is based on three or two elements. One of these factors could be a “hassle factor”. If, for instance, your customer is constantly complaining about your pricing or services, your level of service or even your employees could be in this category “shed” or “low value”. In the end, if they’re always unhappy, they will likely cause you to feel miserable, and so how do you have to deal with them? Maybe they’re not the kind of client you would like to serve. However, if your client regularly refers them to their friends as well as their customers, they may belong in that “high” category. Other categories that can help to determine where each customer is placed are the number of products they’ve purchased from the company. Alongside the gut feel of the profit for every customer, This back of envelope approach is more of science than it is art. But, understanding the fundamental segmentation using the “80/20 perspective,” will prove to be more efficient than it is.
Know the Plan
Once you’ve determined a profit margin for each client, it’s crucial to place them in their buckets in the same manner as we discussed earlier. You could decide to use an extremely high value, a median or low value, and an unfinished bucket. You could also choose to go with an increased potential or high-potential cash cow or the shooting star moniker. Whatever method or category you choose to select regardless of whether you choose to use three or four categories or 14 it needs to be appropriate for your company. The general rule is that you have not more than 3 or five distinct categories to manage. Put all your customers in their groups. Now that you know which segment that they are in it’s your responsibility to figure out the frequency at which you will contact them, how often you reach them, the amount you’ll spend on them, the quality of service you provide towards them, and at the extent, you are trying to keep them.
Know the Impact
By utilizing this new method of discipline by the company, you’ll be able to understand the importance of each segment for your business’s bottom line. You will quickly recognize that 20 percent of your customers account for 80percent of your revenue.
It is crucial to remember that regardless of whether certain customers might be unprofitable, or marginally profitable customers, and even they may be a “pain in the neck” You must take care to treat them as if they were yours. Don’t forget that they remain customers and give you their most valuable assets “their trust to serve them”. If that you do not would like to be serving them or a specific segment is not yours, there are a few sensitive options to get away from the relationship or put them in the higher margins of profit.
If you can segment your customers and you do this, you’ll be doing what only a handful of small and medium-sized companies do. This will result in having the ability to devote more of your time to the best customers, create greater value to all your customers, decrease your loss of customers and earn more for your business and yourself.