Six elements that describe a profitable customer

Last Updated: December 1, 2011By Chintan BharwadaTags: bottom line, marketing

The term “profitable customer” can sometimes be quite subjective. To simplify this I have outlined the top six elements that will enable you to decide who the profitable customer is.

When customers purchase high-margin products and services
When they pay full price, don’t bargain for discounts, and do not ask you to amend the terms and conditions of the contract
When they purchase through few large orders rather than many small orders
When they do not cancel or amend orders
When they pay in advance or pay on time without you chasing them for payment
When they are happy with standard after sales service

To know the profitability of each customer you will have to scrutinise and analyse your CRM and sales data. I’ll bet that if you haven’t looked at this before, you’ll probably be in for a big surprise! In most businesses the 80/20 rule applies and you can determine just “who” that 20% really is.

Segmentation will allow you to communicate in a targeted manner, and this should be based on profitability.

Being proactive on these issues will help you focus on your most precious customers, and this will be your lead over the competition. As said before, some customers are more valuable than others; this is absolutely common and can be for a variety of reasons, such as time of purchase, quantity of purchase, frequency of purchase, etc. The trick is to identify these customers, focus your sales efforts towards these customers, and start running a campaign to attract new customers with a similar profile. All you require is the right information at the right time.

Chintan Bharwada

Chintan is the Founder and Editor of Loyalty & Customers.

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To achieve better sales and profits, most companies could be doing more to cultivate business from their existing customers. However, enthusiasm for customer-retaining strategies must not endanger sound customer-getting efforts. How companies balance the two is the big question. To intensify reaching old customers while still seeking new ones, for many firms, will mean changes in market analysis, planning systems, management incentives, and marketing and/or operations organization. In the rush toward growth, consumer marketers have tended to regard success as stemming from obtaining new customers while unwittingly minimizing the importance of satisfying old ones. It is time for more companies to distinguish between their getting and retaining functions, to assess the balance between them, and to remedy any deficiencies in customer retention. This process requires management to value the potential of current customers and to treat them in special ways to get them to keep coming back. Several major elements should be part of the new marketing mix for customer retention: Product extras Keeping customers frequently requires giving them more than the basic product that initially attracted them. Product extras for individual customers over time can play a sales-expansive role. Reinforcing promotions Product promotion works better when aimed at existing customers. If a marketer knows who these customers are, benefits can be obtained by giving them reinforcing communications. Sales force connections The sales force can play a decisive role in the customer-retention function. At a retail or service counter the salesperson is the focal point of the company's strategy and is the firm to the customer. Post-purchase communication A company must anticipate that some customers will encounter either minor or serious problems after purchasing. If the firm is not ready to hear and correct these difficulties, the customer may not repurchase or may cancel the the relationship. Whether company or customer is at fault, standby post-purchase activities can be instrumental in saving these customers.

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