Customers, clients, consumers, call them what you will but without them, you don't have a business, writes Jason Nash, product solutions marketing manager, Microsoft Dynamics CRM. So surely it's not rocket science to try and understand a bit about them: what they like, which ones need a bit more love, which ones are more trouble than they're worth and which ones are the best. After all, happy customers are good customers and usually profitable. There's nothing revolutionary about this idea, but it's still surprising how few SMBs are adopting this sort of approach to customer relations.
At a basic level, it can be hugely beneficial to understand more about the makeup of your customers. An understanding of things like purchase and payment history as well as specific preferences and business needs can significantly enhance their experience of doing business with you. Customer satisfaction comes from great customer service, so being able to 'add value' by having all the customer knowledge at your finger tips can only be a good thing.
But beyond this, there is a lot of analysis that can be done to find out more about individual customer profitability. I often ask at customer events how many in the audience can tell me who their most profitable customers are and it's always surprising how few hands go up.
Pareto's age old law says 20% of them bring you 80% of revenue, so knowing which ones they are is important on many levels - especially now, in times of economic uncertainty.
When attracting new customers and striving to retain existing ones, there are many offers and incentives that businesses employ to sweeten the deal. There's nothing wrong with this, but it is important to understand the impact of these on customer profitability - as mentioned, the ultimate goal should be profitable customers.
However, despite these 'deals', there is often a lack of focus on customer service which is severely impacting this. The proliferation of the internet has changed the playing field and made customer satisfaction all the more important. Blogs, social networking sites and the like, have made it much easier for customers to express their dissatisfaction which can have a negative impact on future profits and brand value.
The problem comes in assessing the profitability of individual customers and using this analysis in a meaningful way. Naturally, technology, and CRM systems in particular, play a big part in solving this. However, the trick is to adopt a more sophisticated approach to CRM than is normally considered in order to get this level of analysis around customer profitability.
The first stage is to bring all your data into one place and have trust in its integrity. Multiple spreadsheets, databases or systems are a familiar feature for many SMBs but it's impossible to do any profitability analysis until you have a single version of the truth.
Making sure all the details in your system are accurate and up-to-date relies on a high level of user adoption and that has to be a central consideration when any new system is implemented. However, once you have these foundations laid then you can start to make use of analysis tools and get some real insight into customer behaviour.
It's only when you're equipped with this level of information then can you really start to assess the success of marketing programmes and pricing offers or judge the strength of a relationship by something more tangible than whether customers come along to corporate hospitality days. This is vital for customer retention, but also for identifying which ones the low margin or un-profitable accounts are and, more importantly, understanding why.
This was first published in May 2008