It seems logical to measure a customer’s value based on how much they spend, but if that’s the only factor you’re using, you could be missing a trick.
For example, a lower-spending customer may be engaging more with your business than a high spender, helping to promote your product by word-of-mouth. They may be regularly sharing your social media posts, reviewing your products and recommending your business to friends.
If you measured value based solely on average spend, you would miss the opportunity to nurture this valuable customer, who will bring in more business and raise brand awareness.
That’s why it’s important to measure customer value based on what matters the most to your business. Are you focusing on customer acquisition? Your most valuable customers, then, are ones that actively promote your business.
Or if you’ve got a marketing objective around driving cross-sales, your most valuable customers might be those with strong loyalty (making them more likely to try new products) or those who already purchase from multiple product categories.
This isn’t to say that transactional markers of value, like spend or purchase frequency, shouldn’t be taken into account. You’ll probably end up measuring value based on a few different criteria, to get the best picture of which customers are really worth the most to your business.
Identifying valuable customers
But once you’ve figured out what your best customers look like, how do you actually work out who they are?
This is where Horizon’s ELVIS system comes into play. ELVIS allows you to measure your customers’ value with a simple scoring system, making it easier to see who your best customers are, at a glance.
ELVIS is split into five key metrics: Engagement, Loyalty, Value, Influence and Sentiment. Each customer stored in Horizon is given a ranking out of four stars in each of these categories. And under each section, you can set up events, behaviours and activities that affect how customers are scored.
Let’s take a look at some examples of ELVIS in action. For this post, we’ll focus on how the Value Score can be used to identify your most valuable customers.
Based on their advocacy
Suppose you’re a fashion retailer, new to the high street. It’s important that you spread brand awareness, to encourage new customers to come in-store, and your most valuable customers will be the ones who contribute to this goal.
Horizon can take in data from a variety of software and systems – that means that, as a retailer, you could bring together transaction history from your ePOS or ecommerce platform, engagement and behaviour records from marketing systems and so on.
Then, relevant data points (or ‘events’) can be added to your ELVIS set-up, to influence how the customer’s value score is calculated.
Horizon will then process this data, in real-time, and rank each customer based on the criteria you’ve set.
So, in this example, you might configure the Value Score to look at behaviours that help raise brand awareness or drive new customers in store.
In addition to how much a customer spends on average, you could also include events such as how many times they:
- Visit your store
- Check into your store on social media
- Engage with your social media posts
- Recommend your brand to a friend
Based on their usage
Over the past few years, the subscription economy has been steadily growing. Everything from gyms, to software, to meal kits are available as monthly subscriptions these days. But as a subscription service, measuring customer value by average spend isn’t particularly helpful. Most customers will be paying one of two or three set prices.
To figure out which customers are most valuable then, you’ll need to think of what you want out of your customers and this will primarily come down to usage. Customers who use your service frequently (read: get value from it) will be more likely to stick around, making them more valuable long term.
For example, let’s say you’re on the marketing team for a chain of gyms. Which members will be your most valuable? Those who put in the most hours of training, for one, are more likely to stick around past the dreaded renewal date. Similarly, members who work out with friends are lower churn risks.
In Horizon, then, you might tell ELVIS to score a customer’s value in a way that reflects their usage or loyalty. Some ideas could be:
- How many hours a week they use your service, on average
- How many years they have stayed with you
- How many friends they have referred
- If you have a cafe or shop, how often they visit
Based on their loyalty
What if your business model involves a long sales cycle – if you work for an insurance or utilities company, for example? You may be thinking: how does this work for us? If you don’t have regular visits/log-ins, a monthly spending cycle or frequent contact with your customers, measuring value can be a bit more challenging.
The main area you’ll want to focus on is loyalty. How long has a customer stayed with you? Have they got multiple services/policies with you? These factors indicate that a customer is less likely to churn and suggests long-term loyalty.
To track this in Horizon, you could set ELVIS to track events like:
- How many policies/services they have (think multi-car insurance, multiple savings accounts)
- How many years they have been a customer
I know who my most valuable customers are, now what?
Now it’s the time to reward them for their custom. Doing this encourages the customer to engage more with your business, as well as giving them a positive experience that will build emotional loyalty.
Say for instance, you were at a gym and your ELVIS score was influenced by how many hours customers spent at the gym in a month. You can then give these customers rewards for their ‘hard work’. This makes the customer feel valued and more positive about your business.
You can then take it a step further and offer your customers a reward for doing something. Looking again at the gym example, you could offer customers a reward for tagging your gym in a tweet. Not only does this help promote your business, but it makes the customer even more valuable, by encouraging them to keep sharing.
Knowing who your most valuable customers are is very important. By nurturing these customers, you can build profitable, long-term relationships. It also ensures your marketing team uses their time efficiently, as they focus on the customers that matter most.