We talk about customer value but how do we measure it? For those of us with a small number of clients, customer value has a face and voice. We know which customers we love to work with – who appreciate our company and our services. And we know when that sense of value is missing – those clients that are just trying to get a quick job or the cheapest price.
But for these of us with larger customer bases (especially online businesses), it is not so easy to get a real handle on customer value, much less measure it. Often we only have email and purchases as data and little more. Who is more “valuable”? Is it that customer that made a big purchase last week, or the one who consistently purchases small items?
One technique, used for many years in the retail sector to segment customers by value is called RFM where the initials denote:
The easiest way to use this technique is to assign 3-5 levels per variable and then “score” each customer. The “levels” will depend on the types of products or services sold.
For example, let’s use the example of an online pajama site. Here the scoring may be as follows:
Your customers would have scores from 3 to 9. You can then plot them in a 3-dimensional bar chart as shown here to look at natural clusters, and to possibly make adjustments to your scoring levels.
The next step would be to look at marketing campaigns targeted at these groups such as:
The advantages are that you will have more personalized, targeted messaging. And you will save money by marketing to those customers who are most likely to respond. But use some discretion with RFM. Don’t overburden high scoring customers so they feel badgered, and don’t give up completely on low scoring customers – they may very well come back.
On the occasion of the launch of new SCORE partner Smart Hustle Magazine we’ve invited Ramon Ray, publisher, to share with you his best practices for being smart with your hustle – smart hustle! Get your free subscription and join the community at http://www.smarthustle.com.
As small businesses owners, we are experts at the hustle. We know how to sacrifice our own salary to pay the salary of our employees. We know how to stand in the rain to speak to a prospective customer. We know how to get friends and families to fund our new venture. We know how to make lemonade out of lemons – we know how to hustle.
However, it’s also important that we know how to be smart about our hustle as well – we call this the smart hustle.
Small business owners who are just hustling, will often do “ok” but they’ll grow their businesses at the risk of making costly mistakes. They’re work inefficiently and overall struggle more often than those entrepreneurs and small business owners who are more strategic.
We’ve found there are 5 core disciplines every small business owner must understand and be educated about to be more smart in their day to day hustle.
So many business owners are experts in the craft of their passion, but know little about money, cash flow and overall financial management. Understanding profit and loss; being knowledgeable about debt and equity and having a firm grasp of basic accounting will help you build a profitable business. It’s important to know not just how much money is coming in (accounts receivables) and how much money is going out (accounts payable) but also about the profit margin of what you are selling and more. Smart business owners are experts in their passion but also have a firm grasp of the numbers behind their business operations.
Marketing is the only way that your business will get new customers. Having a firm grasp of the fundamentals of marketing is important to ensure that you have a steady flow of leads, converting to customers and finally turning into loyal customers for your business. Whether your marketing is word of mouth, social media, TV or mailing out 500 post cards you must take the time to understand the fundamentals of marketing.
Technology is a broad topic that encompasses a wide swath of your businesses operations. Technology facilitates your collaboration & communication, powers your accounting system and so much more. Remember, technology is only a too, but is a tool you must learn how to use as a strategic asset in your business. The proper implementation of technology can help you save time, save money, increase productivity, deliver better customer services and so much more.
As your business expands you’ll need to hire people who can help. These might be front line employees who are doing specific tasks, or managers who are part of your leadership team. Whoever they are, you must learn the art and science of how to hire and manage people. In some ways it’s easy, but in many ways it’s hard. How do you deal with a “problem employee” but who is an asset to your business? How do you deal with an employee who has a good work ethic but is nor performing. These are other issue are all part of hiring and personnel management!
As your business grows you’ll need and want to make strategic relationships with other companies, review contracts and commit to deliverables beyond selling your product to a customer. These activities and more are all in the realm of business development and the law. You don’t have to be a lawyer or a corporate merger expert – but you should have a sense of deal making and how business law.