This blog was written Mike Nierengarten
As marketers, we work hard to acquire and retain new customers, but not enough of us spend much time thinking about what type of new customers we want to acquire by looking at our existing customer base.
The best customers are those that last a lifetime, and by segmenting your current customers and identifying which are the most profitable, stay the longest, expand service, and refer new customers, you can allocate more of your marketing dollars to acquiring similar prospects. Segmentation also highlights which of your customers are leaving, helping you understand what causes them to churn and therefore make a conscious effort to fix it.
If you’re a B2B organization, your company likely markets to large enterprise customers with large budgets differently than more price-conscious small-to-medium businesses (SMBs) whose needs may be different. You might separate your enterprise sales teams from SMB sales teams, and you may have different cost per new customer targets for enterprise and SMB. If you’re a Consumer organization, your marketing understands that marketing to pre-teens is different than marketing to a new mom—your whole approach may be different, including your revenue goals. Go beyond just segmenting your customers into large buckets and distinguish sub-segments for each of your customer segments.
Here are four steps to segment your existing customers to target the right prospects:
1. Identify Your Best Customers to Find Your Best Prospects
If you want to acquire the right prospects, it starts with knowing who your core customers are. Your best customers are going stay with you for a long time, refer you, and extend your marketing and sales efforts. So, prospects who have the same personas, or attributes as your core customers are your best prospects.
Every company is going to have different ways of defining their best customers and prospects. As an example, Dialpad understands the key attributes that make up their customer personas: industry, number of employees, company revenue, job roles, product interests, etc. But they also realize that their best customers share their positive experiences on social media, so they target prospects who have the same persona as their core customers and are more likely to publicly advocate. Specifically, they look for prospects who have shared positive experiences on social media profiles and technology review sites in the past. Then, they pair this knowledge with data from exploratory questions, onboarding information, and third party tools. They know their best customers use Google Apps, for example, and this factors into their prospect vetting process.
2. Calculate the Customer Value
In creating a list of your best customers, take into account the value that each customer brings your business. Calculate their profit margin, customer lifetime value, and retention rate and consider added value such as client referrals, joint marketing, case studies, and reference.
While profit margin and lifetime value are significant, do not underestimate the value of advocacy. A past study by Zuberance revealed that brand advocates are worth five typical customers, significantly multiplying the overall customer value. Understanding common attributes in your customers advocating your brand will help you easily identify future brand advocates.
3. Increase Spend on Campaigns Targeting Core Prospects
Once you have put together a profile of your best customers, you can use those same attributes to identify your top prospects. Since long-term, highly profitable customers who advocate are worth more than a standard customer, you should spend more to acquire them.
Picture a campaign budget of $100,000. Let’s assume a core customer costs twice as much to acquire, but profit margin is 15% compared to 10% for a standard customer and their lifetime revenue is five times a typical customer.If historically, half of your budget was spent on acquiring standard customers and half was spent on acquiring core customers, you could increase profitability by 35% just by shifting your media spend to 80/20, targeting more core prospects. Despite spending more on targeting core customers, these buyers will provide more value to your business due to their advocacy, retention, service expansion, and overall spend.
4. Run More Campaigns Targeting Core Prospects
By knowing who your best prospects are from evaluating your best customers, you can optimize your current campaigns and determine which are most effective at acquiring these target buyers. You can go a step further and establish different cost per opportunity targets for core prospects and then optimize campaigns to drive future long-term customers and advocates. For example, if your general customer target is IT decision-makers and you determine that IT companies who use Hadoop with 100-1,000 employees are more profitable and advocate more often, you can increase your cost per opportunity target for the sub-segment of Hadoop users at mid-size companies. Ideally, you’ll know just how much more you can pay. And if in your analysis of your best customer you determine that your best customers are worth 8x a standard customer, you should be able to increase your target cost per opportunity by 8x.
Long-term revenue goes beyond just acquiring customers. If you have a good grasp on the correlation between your best customers and what you are willing to pay for those customers, you may end up paying a little more per customer in the short-term, but your long-term profitability will skyrocket. On the flip side, it’s just as important to proactively identify which customer segments are more likely to churn and work hard to continuously provide value to them to retain them.
Have you started segmenting your customer base to find the best prospects to target? Share your experience in the comments below!