Customer value analysis is a very good basis for us to address customers in a personalized and individual way. Therefore, it is also very helpful in building long-term and good customer relationships.
Use objective criteria to make visible who your best customers are and free success from chance and gut feeling.
With the help of the customer contribution margin calculation or the RFMR method, this is relatively easy. RFMR stands for a fascinating use of the three key figures Recency (date of last purchase), Frequency (purchase frequency) as well as Monetary Ratio (average order/purchase value).
Through a customer value analysis, you can segment your customers wonderfully and address them individually and specifically according to their behavior.
You can address the group of those who buy a lot and frequently differently and with a different frequency than those who buy from you only rarely but, for example, have a high sales contribution or, even better, a high contribution margin. What we recommend about unprofitable customers is in tip 4!
Focus on your best customers as well as customers with the greatest potential. Get to know your different customer groups better. When you know your customers, you can target them accordingly. “Best customers” can sometimes be customers without a high contribution margin if they have high potential. I.e., you build and invest in good relationships for strategic development.
DO NOT directly part with your “unprofitable customers”, because hard termination of customer relationship has already resulted in great image loss. Rather, take a closer look at the group of unprofitable customers and define goals and measures.
Why are these customers unprofitable? Would digitization or automation of some order processes be enough to make the customer relationships profitable again?
If disconnection is then on the cards after all, we know many communication ideas for doing this simply and without much fuss.
Especially in times of crisis or when budgets are tight, the sales and marketing shotgun is no longer suitable. What counts is to implement targeted measures. Move away from the watering can to marketing activities that are targeted to target groups.
Customer value helps achieve this reduction in wastage. And it does so significantly.
The RFMR method is a very simple, but a very effective segmentation method. RFMR stands for Recency (date of last purchase), Frequency (frequency of purchase) and Monetary Ratio (average order/purchase value). This method is immediately understood by management and colleagues. It is not rocket science.
If you know those customers who are loyal and valuable to you through a customer value analysis, then new customer acquisition is also easier. Look for exactly where the best customers come from. This reduces wastage and also improves lead conversion.
Erwin Staudt (ex-president of VfB Stuttgart and long-time IBM boss in Germany) told me: “With RFMR I controlled the whole company. Few, but relevant key figures for customer orientation, that was always important to me”.
You can find more on this topic at CRM-TECH.WORLD:
- RFMR, contribution margin – Important contribution to resource management and controlling
- Should we part with unprofitable customers? Or would you rather not? CRM Best Practice
- Customer Relationship Management: How to determine an initial customer value? CRM in the crisis
We would also be happy to support you with customer value analysis. Write to us and arrange a 30-minute free consultation.