Not all customers are created equal. There is always a segment that outperforms the average by a mile, bringing in significantly more revenue. Let’s call them your Best Customers.
Focusing on this cohort is one of the smartest business moves you can make to increase customer lifetime value.
I realize that attracting and retaining customers isn’t easy. In this hyper-connected age, your customers have a lot of distractions and to make it worse, online comparison between offers is easier than ever, making switching often quite simple. But this extra value makes it worth it.
Clearly, a focus on Best Customers and retention is critical:
- It can cost seven times more to acquire a new customer than to retain an existing one.
- Seven out of 10 companies say retention and loyalty are critical factors for driving growth.
- The average company loses between 10 and 30% of its customers annually.
A first purchase is not the end point for marketing. The real growth potential often comes from developing repeat and returning customers. Best Customer development is a big deal—a stepping stone to more business to come.
Setting the Stage for Best Customer Success
Now it’s more important than ever to focus on your Best Customers. Take into account the goals you’d like to realize:
- Grow customer lifetime value
- Increase engagement and retention
- Convert them into brand ambassadors
- Surprise and delight with personalized experiences
So you might be tempted to start your Best Customer efforts at the point where they become a Best Customer. However, to be able to get serious results, we have to set the stage for Best Customer success earlier in the customer lifecycle.
The Five Phases of the Best Customer Lifecycle
Attract customers with the right mindset and profile—the ones who have the potential to become Best Customers. Think of it as being a doorman at an exclusive club. Being selective up front makes sure the right people for your business come in.
Some companies will craft an anti-persona or publish a “We can’t help you if..” page. But that might feel a bit drastic. One-time buyers or bargain hunters, which are typical “not best customers” might be a very profitable group for you as well.
We can only spend that acquisition dollar once, and the rule of the thumb states that it costs 7x more to acquire a new customer than to keep one. According to Bain and Co., a 5% increase in customer retention can increase a company’s profitability by 75%.
We want to tip the scale in our favor. Change the composition of your customer base to increase your average customer lifetime value by putting in the (extra) effort and acquisition budget towards potential Best Customers.
During this phase, we need to know more about your audience to be able to qualify them as potential Best Customers. Ask for their preferences and feedback, including additional information that you will need later on to stimulate the engagement and growth after their first purchase.
As Iterable has aptly stated, this data will enable you to personalize the brand experience and make your subscribers feel Wanted, Remembered, Valued and Connected.
It’s important to attract groups that already look like your Best Customers, so they can later become them. Capture their profile and preferences early on, to allow for targeting, growth, and development.
Keeping in touch is key for any long-term relationship building. An automated nurture program gives you the opportunity to set expectations and establish your brand personality in their minds.
In my opinion, subscribers are already customers, even if they haven’t bought any product. Subscribers pay with their attention and data, expecting to get something in return. So the nurturing stage is very important to deliver value and keep in touch. Otherwise, this is where you lose your potential Best Customers to the competition.
4. Sell and Grow
This is where the Best Customer relationship gets serious. Their needs fit with your product and they trust you enough to trade liquid value (money) with your product value. After the first purchase, this is the ideal phase to develop the relationship and increase value through cross-sells and upsells.
5. Wow and Retain
This is where the typical Best Customer program starts, but increasing Loyalty and Advocacy is hugely dependent on how well you have done in the earlier phases.
Retention can be measured by repeat purchases, and for many subscription businesses that means stimulating adoption, satisfaction and repeated use. Get customer service involved by giving them the freedom to delight customers.
There is plenty of inspiration to be found for customer service to surprise and delight shoppers. For instance, sending a video response to FAQs, making a donation in your customer’s name, or sending gift cards to them on a designated Customer Appreciation Day.
Include All Lifecycle Phases Into Your Best Customer Program
So now we see that all the phases of the customer lifecycle are included, setting the stage.
RFM Your Way to Best Customer Engagement
But how do you know who your Best Customers are? Time to pull out the calculators for a bit of RFM analysis. By combining the Recency, Frequency, and the Monetary value of purchases, we can distinguish the “Super Shoppers” and the Best Customers that may need to be re-activated.
Many marketers express the ambition to start building cohorts and segmenting their marketing efforts more. Well, this is one of the ways to do it. With the analysis in hand, we can plan out campaigns per segment.
A Best Customer reactivation campaign, for instance, can be triggered with a few simple rules to get the segment and timing right in your marketing automation system.
For example, trigger a Best Customer reactivation campaign when a customer:
- Spends over $500 in last 12 months (Monetary value)
- Buys at least five times in the last 12 months (Frequency)
- Has not bought in the last four months (Recency)
RFM is great, but it leaves out one key element. Someone could be an avid advocate for your brand and follow you intensely but not have the opportunity to buy. By adding engagement to the mix, we get Engagement RFM or eRFM for short.
By not only looking at purchases, but also the Recency, Frequency, and engagement, you gain a complete picture of your relationship with those customers. eRFM is a good tell for how actively involved and enthusiastic your customer is, especially if you are selling goods with a low purchase frequency.
We see that there is big potential for developing good customers to Best Customers by increasing spend and frequency.
Every Company Should Focus on Their Best Customers
Every company should set the stage for Best Customer success by attracting and developing promising prospects. Your Best Customer segment is the key to higher customer value and more profits.
But what do you send them? Stay tuned: in my next article, I’ll show more examples of Best Customer campaigns to increase your success.