Who are my best (read "most valuable") customers? It isn't necessarily those with the highest lifetime sales/profit, although that's how direct marketers often see it. Your best customers are actually those who will continue to do business with you in the future.
Let's compare two customers: John Smith and Bob Jones. John's lifetime spending and profit are $1,850.00 and $872.00, respectively. Bob's stats are $486.00 and $204.00. At first glance, you'd be inclined to think that John is the more valuable customer. But here's the thing ... John hasn't placed an order in nearly a year. Bob, on the other hand, was acquired as a new customer about a month ago and has already reordered two times.
Bob's recency and frequency scores place him very high on the value ladder. John, on the other hand, has most likely defected and presents little to no future value to the business. His contribution to profit in the past is little more than noise and should be largely ignored.
The morale of this story? That a customer's value must be gauged strictly by their potential contribution to future profits. This is quite difficult, if not impossible, to accomplish without the sort of rigorous methodology that Deltalytics provides. Make no mistake about it ... the stakes are enormous. Cultivating your best customers will provide enormous long-term rewards.
You should encourage them to spend more, to order more frequencly, to refer other customers (who research shows are far more valuable than "passively" acquired ones). But before you can do this you must identify them first. That's what Deltalytics will do. And even more, we'll predict how they'll behave in the future and their likely impact on sales and profit.
< Back> <Top>
Where do my best customers come from? The way you currently determine the source of your best customers is probably flawed. If you're like most small business marketers, you either (i) don't seriously consider this question at all, or (ii) you look at the raw sales and profit figures for a given promotion and decide the winner(s) accordingly.
Here's the problem ... how much revenue and profit a particular promotion (medium, advertisement, offer, etc.) generates can be completely misleading. In fact, we've seen cases where the worst performing ads prove to be the most productive in the long run. How is this possible?
It's simple, actually. You just need to think in terms of the "tail" rather than the "head" of a promotion. Deltalytics does this for you by studying the long-term contribution of those customers who were acquired through a given promotion. Each is identified and tracked as a unique segment to see how one group compares to another. Not just sales and profit, but also in terms of reorder rate, average latency, average lifetime, average order amount, et. al. to see how each group compares and is predicted to perform in the future.
Bottom line, your best customers come from those (promotions, ads, mailings, leads, referrals .. whatever!)1 sources that generate those with the highest aggregate customer lifetime value (LTV). This can only be accomplished by identifying, grouping and tracking every customer by their source, compiling the statistics for each group, and then comparing their long-term outcomes.
This insight alone will more than justify the investment in your Deltalytics subscription. How so? Because by learning which acquisition methods truly produce your most valuable customers, you'll refine your marketing strategy accordingly and ensure that every dollar spent produces the highest return possible.
1Actually, Deltalytics goes even further. It not only treats promotional sources, but also creates and analyzes segments by "item, product style or product class" a customer first ordered [see below];" who their "salesperson" was; what "customer type" they were assigned, and others.
< Back> <Top>
Which of our products generate the most value? Most companies run reports on the sales and profit of their items in part to determine which are the "best sellers." Most also take the next step to conclude that their most profitable items also generate the most value. But is this necessarily the case? Not at all.
A given item's direct contribution to profitability is, of course, nothing to be sneezed at. But what's far more important is that item's indirect contribution to future sales by the customers it attracted in the first place. In other words, customers who purchased Widgets might reorder at a significantly higher rate than those who purchased Wadgets. Even though the direct sales and profit of Wadgets may be higher than that for Widgets, if Widgets produced more downstream profit (i.e. contributed more to customer LTV), then it is the Widget that is the more valuable item.
Deltalytics — unlike the management reports you're currently using — focuses on and illuminates the dynamic relationships between business entities (like inventory, promotions, salespeople, etc.) and long-term customer value. Unless you only plan on being in business for a short time, the yardstick by which nearly every business decision you make must be its impact on long-term profitability (aka customer LTV).
The unique and noteworthy power of Deltalytics, however, is its ability to (i) forecast future financial impact with relatively little transactional data; (ii) uncover any latent variables that contain predictive value; and (iii) analyze segments of the customer population in order to predict future behavior more accurately.
< Back> <Top>
Which customers are in danger of attrition? Identifying those customers in danger of defection is critical since (i) you can, in some cases, prevent this from occuring by being pro-active, and (ii) it may cost you 5x more to acquire a new customer than to retain an existing one. By studying customer buying behavior Deltalytics can pinpoint those customers who are in danger of leaving, giving you a chance to intervene and save that relationship.
We’ll also calculate the attrition rate and report the delta over time to show whether the rate of attrition is increasing or decreasing (across and among customer segments). The objective is to correlate business tactics with their results and in ways that financial analysis simply cannot do.
< Back> <Top>
Which customers are unprofitable and what should we do about them? Continuing to waste precious marketing dollars to pursue unprofitable accounts is one of the most common mistakes made by both small and large businesses alike. Deltalytics will reveal which of your customers have an unprofitable outlook, and to what degree, so you can make an informed decision about how to treat them. It's important to remember that lifetime sales and profit are often a very poor indicator of customer value (although these are the two metrics used most often). For instance, a customer who recorded the highest lifetime sales and profit may not have placed an order in over two years, rendering them potentially valueless. The past doesn't concern you. But the future certainly does, and that's what Deltalytics serves to illuminate. By understanding the behavioral dynamics of key customer segments, you can focus on acquiring and retaining high-value customers and cultivating increasingly profitable relationships with those customers over time.
< Back> <Top>
Overall, is my business on the rise or declining? Just because your financials are looking good (sales and profit are up 15%, say, over the previous quarter) doesn't mean your business is. Not by a long shot. What ultimately matters is the potential value of the customer database over the longer term. What if the recent increase in sales and profit was due to a substantial reduction in selling price of your primary product line, and that the new customers you attracted will reorder at a far lower rate, and with a much smaller average order size, than the customers you attracted previously (at higher pricing)?
While you won't see the impact right away, this new crop of customers is far less valuable than previous ones. They'll spend less, reorder less often and defect sooner. In short, while the lower pricing tactic may have appeared to generate positive results, it has instead had a profoundly negative impact by recruiting low-quality customers who, over time, will contribute far less to future sales and profitability than the higher-quality customers they have replaced.
Deltalytics analyzes these buyers and quickly determines if a negative or positive trend is likely to emerge. This way, you'll know far sooner whether a particular strategic initiative will be favorable, or not. And certainly far sooner than if you simply relied upon your existing financial and management reports. Deltalytics gives you the knowledge and insight you need to the propel your organization to the next level.
< Back> <Top>
What statistically significant behavioral segments do my customers fall into? And how can I use this information to increase their spending and lifetime value? // Content to follow, please check back later.
< Back> <Top>
What is the projected value of my customer database right now? In three years? // Content to follow, please check back later.
< Back> <Top>
