In a previous blog post, I listed 99 ways to optimize your sales funnel and grow your business. One of those tips was to “Divide up your Customers into ‘most profitable’ and ‘least profitable’. Figure out what traits are common among the most profitable ones. Then increase your marketing to audiences with those traits.”
HERE’S HOW TO FIND YOUR MOST PROFITABLE CUSTOMERS
Step one: Identify a cross-section of customers. For example, list the last 25 people who have purchased something from you. Don’t choose the ones who have bought the most or the least. Rather, just choose the most recent ones. (You can choose more than 25 if you have the time, but you need to start somewhere and this is a good place to start).
Step two: Create a chart to measure the cost of doing business with each Customer:
The speed that each customer progressed through your sales funnel. Use timestamps on tweets, email, forms, etc. to figure out approximately how long they spend in your funnel. Get as accurate of a picture as you can, even if it means starting later in your sales funnel. For example, the first time I did this, the most accurate number I could get was the Lead date, not the date they became an Audience member… that’s good enough. Record their progress from as early as you can in your sales funnel until after you have delivered your product or service and received your money!
- The effort required to turn them into a customer and then to deliver the product or service and get paid for it. In this case, it could be just a simple rating system of 1,2, or 3. The higher the number, the harder it was to turn them into a customer. For example, my easiest Customers were the ones who (when they were Prospects) posted a project, received a proposal from me, hired by with the click of a button, and pre-paid me. They would be “1”. Other Customers (when they were Prospects) required a lot of phone calls and up-front discussion before they would even consider bringing me on as a service provider. They would be a “3”. Remember: Record the full effort of the relationship. They may have been a great Customer but if you had to constantly bug them to pay you, the relationship will be less profitable.
- The amount of financial investment required to turn them into a customer, deliver the product or service, and then complete the relationship. This one can be harder number to nail down since most of your investment is likely spread across several customers. But there might be some money spent on these Customers, including Paypal fees, parking meter costs, printing costs, etc. For example, most of my costs are spread but a local Prospect might have been converted to a Customer after I spent money to print a customized portfolio and then spent billable time, fuel, and parking costs to meet with them face-to-face.
Step three: Determine how much money you made off of each Customer. Just a simple, raw revenue number should work.
Step four: Compare. You now have two data sets – the cost of delivering and the return you received. Compare those two data sets. I’m sure there’s a formula for this kind of stuff but I prefer to just eyeball it. It’s not perfect but it’s close enough and we’re not trying to split the atom here. You should be able to rank your Customers from most profitable to least profitable, or (at the very least) just split them into two groups – more and less profitable.
Step five: Sort your Customers. Using the same list of Customers from above, create a chart of attributes that describe your Customers. For example:
- Number of employees
- Annual revenue
- Country of operation
- Years in business
- How they initially heard about you
There are lots of other attributes but these are the ones I’ve found to be most helpful.
Step six: Group your Customers. Now that you have all of this helpful information, it’s time to make some decisions. You’ve probably found that your most profitable Customers can be grouped together in one way while your least profitable Customers can be grouped together in a different way. (If you haven’t found that, go back to step five and add more attributes to your chart — try figuring out who your Customers’ Customers are, why they are in business, and how much competition there is in their industry).
Step seven: Re-shape your business. Now that you know what your most profitable Customers looks like, it’s time to start marketing strategically and aggressively to that group. Figure out where they spend their time, what messages they respond to the most, and what motivates them to buy. Look at other products and services they buy and the messages those products and services use to market to this group. Revise your brand to communicate directly with them. Shore up your services to deliver even more value to this specific group. Listen to people who are thought-leaders for this particular group.
AN EXAMPLE FROM MY BUSINESS
Several years ago I used this same method in my own business and found that although I was serving a variety of Customers, the most profitable (they were the easiest to get, the fastest to provide service, the lowest cost to serve, and they paid the most money) were in the financial and real estate industry, primarily small agents and brokers who had established practices but were trying to build a web presence. With that information, I focused my business and grew it dramatically. I also found that technology companies were quite profitable for me when I delivered specific types of content, so I invested in some relationships that would specifically generate more tech Customers. It was a delicate balance to work with both financial/real estate Customers AND tech Customers (since marketing to each industry is very, very different) but the awareness and effort of focusing on both has paid off.
NOW IT’S YOUR TURN
Working with numbers always seems daunting and I have no illusions that thousands of people will break open Microsoft Excel and start measuring this stuff. But for those of you who do invest a day or two of time, you’ll discover some seriously valuable information about your business that you can use to grow profitably.