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Customers
aren't always the same
Understanding
which of your current customers generate the most profit for
you and why, can be very revealing and, when correctly used,
can help you to focus your marketing on attracting more
like them. Here are a few tips ...
Biggest
isn't necessarily best
It is easy
to assume that your most profitable customers are those that buy the
most of your products or services in revenue terms. However, that
doesn't
take into consideration the mix of products and services
that they buy (different products and services generate different
margin levels) or all of the costs involved in servicing those
customers.
For
example, it might easily be the case that your biggest customer
generates a relatively poor level of net profit because
they consume a large quantity of a low margin product.
Similarly, another customer may purchase a large volume of a
high profitability product, but erodes all of that profit through a
high cost of servicing because they are very demanding of your time,
expect exceptional discounts, rarely pay invoices on time,
require specific documentation, and so on.
Take a
closer look
To find
out which customers really generate the most profit you will need to
do some simple analysis.
Start by
looking at the profit potential on each of your product and
service offers and rank them accordingly. Make sure that you
include your normal costs of sale and average discounting
levels in the calculations so that you are working with 'real life'
figures.
Second,
look at your customer list and work out the real cost
of maintaining their current purchase levels. Here you
need to consider the individual characteristics of each customer and
account for exceptions to the norm, especially those that are most
demanding and those that are generally poor payers. You can
then rank the customers by their cost to serve.
The final
step is to combine the real life profitability of your
offers and the cost to serve of each customer with the purchase
volumes that each customer makes. This will quickly identify
which customers really are generating the most profit ... and which
aren't.
Memorable
Marketing
Thinking
and working pragmatically like this will help you to make
your marketing work better for you in a more memorable way.
This means that your target customers will be able to differentiate
your products and services from those of your competitors and
clearly see the value in buying from you.
If you would like some advice on memorable
marketing techniques for your own business, or you know someone
at another business who might need help, then please contact us. The sooner you start, the sooner you will benefit.
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The
80/20 Rule
Download this handy guide which highlights how you
can use the 80/20 rule to make decisions on allocating
scarce business resources to achieve the best available returns
and deciding how the business should
grow.
Written by
the Chartered Institute of Marketing as part of their ‘10 Minute’
series, this document makes easy reading for business people of all
experience levels.
Marketing
Effectiveness Assessment
A
free service to small businesses in the Buckinghamshire, Berkshire
and Oxfordshire area, the Marketing Effectiveness Assessment
delivers a professional audit of how a business is using the tools
of marketing to communicate to existing and potential customers. It
also includes a series of simple and cost-effective marketing
activities that the business can implement immediately and at low
cost.
Download the factsheet now.
Useful
Links ...
Adduce Marketing
Chartered Institute of Marketing
Marketing UK (information portal)
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