Your customers’ value isn’t just determined by the money they spend with your business.
Now, you might be rolling your eyes and thinking “Obviously… we treat our customers as people, not dollar signs” – which is awesome. But it’s not what I’m talking about here.
Even in a customer-centric world, you know that some people create more value for your business than others – and it’s these customers that are especially worth nurturing and retaining.
But a lot of businesses are defining this value based solely on a customer’s monthly spend or average basket totals. This approach gives a very narrow view of value, potentially with skewed results (especially if you operate under the increasingly popular subscription model, where most customers spend a set amount each billing cycle).
The problem is that, in most industries, what a customer pays is only one aspect of the actual value they bring to your business.
The trouble with transactional value
Suppose you have two customers, Emma and Abby. Emma spends an average of £50 per month, but beyond this, she hardly engages with your brand at all. Abby, on the other hand, spends an average of £30 per month – but she engages all the time, sharing your content on her social channels, leaving reviews, checking into the app and referring her friends.
A typical value analysis would conclude that Abby is less valuable than Emma, because her average transaction size is lower. But this misses the big picture – the additional, non-transactional contributions Abby makes by advocating for your brand and maintaining a positive emotional connection.
Abby is a customer worth engaging, nurturing and retaining, just as much – or perhaps more so – than Emma. But if your analysis of her value is limited to spend, you may miss out on opportunities to engage her and maximise the value of this relationship.
To get a more accurate – comprehensive – picture of your customers’ worth, you’ll need to take into account their behavior beyond the checkout.
So what behaviors should you track?
In short, it depends… You’ll need to think about what constitutes value for your business. Certainly things like referrals and positive reviews – where the customer indirectly influences another transaction – should be on the list. But you may also consider things like sharing your brand’s content (raising awareness), regularly using your product or service, or engaging frequently with your app, loyalty program, etc.
Start by working out which of these factors you can reliably track and use to segment your customers. And in light of GDPR, make sure you’ve got the appropriate consent to use customers data, or are covered under legitimate interest.
Then, come up with a plan. Out of all the customer attributes and behaviors that add value to your business, which two (besides spend) are the most significant? Think particularly about activities that contribute to your overall marketing or business goals.
For example, if your goal is to increase brand awareness, you might weight a customer’s social influence and engagement as the key factors in determining their value. If your team has been set significant targets to grow your customer base, existing customers who refer friends and advocate consistently for your brand will be particularly valuable.
It’s ok to start with only one or two factors, and add in more as you go, especially if your current set-up makes it difficult to pull in lots of data points. The more insight you can add, the better picture you’ll have of which customers are truly valuable. But even a little insight into who your “best customers” are can help you maximise this value and use it to your advantage.
And that’s the key reason for understanding customer value – to nurture those relationships more effectively. It’s no good knowing who your best customers are unless you’re going to do something about it.
So what might you do with this new insight?
Let’s go back to the example of Abby and Emma. Knowing that Abby is influential on social media and shares a lot of your content, you might decide to give her a “surprise and delight” reward to thank her for the positive messages she spreads about your brand.
Not only does this make her feel valued (and even more positive about her relationship with your business), it also gives her yet another reason to talk about your brand with her social community.
At the same time, you might offer Emma a special incentive to refer a friend or advocate for your brand, to encourage the non-transactional behaviors that would make her even more valuable.
Understanding which customers are worth the most to your business – and why – can help you nurture and retain them more effectively. Similarly, knowing which customers aren’t as valuable helps you focus your resource on those who are worth keeping.
Being able to identify and reach both groups with the right content and offers is key to getting the most out of your marketing efforts.
If you’re interested in learning more about investing in – and retaining – your most valuable customers, check out our latest webinar: “How to reduce retention spend by focusing on the right customers”. It’s on-demand, so you can watch it (and go back to it) whenever you want. Download it here →