Customer Value - Finding the "Ideal" Customer

Posted by Cathy Harms on Tue, May 07, 2013 @ 01:28 PM

 Last week’s post discussed the importance of knowing your customers and tracking their purchase information.  This week the discussion is about the value of a customer and trying to define customers so that you can choose the best marketing strategies to connect with them.  The next 2 weeks, I will cover different marketing strategies based on the customer personas that you may want to target.

Profits

Rory Fatt from Firepower Marketing defines the value of a customer in almost any type of business as $6,620.  Here is his calculation:

Casual Restaurant:  Average sale is $12, average visits are 2 times a month which generates $288 for that one customer per year.  But in reality, there are usually 2.3 people at the table, so you add in their average sale - $374.  Plus the customer will tell 5 of their friends about your place if they have a great experience and of those 5 one will become a regular customer.  The expected lifetime of a restaurant customer is 5 years, so the value is $3,310 for one customer and then an additional $3,310 for the friend who was referred and became a customer.

·         One customer   $12 x 2 x 12 = $288 x 5 years = $1,440

·         Additional people at table   $12 x 1.3 x 2 x 12 = $374 x 5 years life = $1,870

·         Refer 5 friends and one becomes customer  = same as above total $3,310

·         Total lifetime value = $6,620Restaurant loyalty

 

I believe that his calculation is interesting and wanted to look at other types of businesses so see the impact with their data:

Convenience Stores – Data from NACs – average monthly spend in-store is $8.60 and  40 gallons of gas.  Assuming gas prices are $3.50, this customer is spending $148.60 per month equating to a lifetime value of $8,916.  Keeping with the same theory that at least one friend referral will stick, one customer is worth $17,832. 

Dry Cleaning – data from personal experience.  I dry clean some pants and jackets for work and winter coats.  I typically go 2 times a year and my average ticket is about $120.  I have actually been with my dry cleaner for 20 years because we have not moved.  But that is not typical, so sticking with the same formula above an average customer would be worth $1200 and I am worth $4800.

These can be big numbers for a business and numbers that can be influenced by targeted marketing.  In the Casual Restaurant example, if you were able to increase visits to 3 times a month, your lifetime customer value increases by 50%.  If you increase the average spend by $2, it goes up an additional 16%.  The best way to do that is through direct communications the way your customers want to be contacted via email, text or social marketing.

Average customer lifetime value is important, but equally important is understanding the characteristics or personas of your best customers.   With a loyalty marketing program you are capturing customer information so you can define your best customer.    Your customer data will let you know which individual customers are your best customers.  The key factors to consider:       

What is the average amount spent per visit?

How often do they visit?

Do they always use discounts?

Which offers are they most responsive to?

Which form of communication do they respond to?

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 Take this key data and compare it to the demographic data you may know about your customers.  Key data you may have would be gender, age and home address.  You also use your intuition and experience to begin to describe and target your “ideal” customer.

Let’s use C-Stores as an example.  A couple weeks ago I attended the M-Pact Show in Indianapolis.  I attended a session by Michael Davis.  There are a few personas for that industry that drive significant profits:

  • Boys to Men – ages 16 – 26 – they love the food, convenience and variety of beverages
  • Busy Mom and Dad – C-stores that are clean and the food is fresh are attracting more woman and men as an option for family dinner. 
  •  Reward Seeker – C-stores are perfect for the person who want to treat themselves.  Candy selection and inventory is important.
  •  Gas Alone – based on location and price, this person never goes in the store.  This is not the ideal customer but knowing who they are can help you change their behavior through signage and email or text marketing special offers to get them inside.

Think about your customers and what draws them to your business.  The data that is collected through a loyalty marketing program allows you to learn about spending habits and responses to promotional offers that you may send via text or email.  This data will help you as you think about the next step -   how to engage these “ideal” customers and make more of your “average” customers “ideal” customers.

Figuring out your ideal customer is just the beginning to creating loyal customers. Learn more about how to create loyal customers at your C-Store with our guide below.

download cstore guide to loyalty

Tags: Loyalty Marketing, Customer Experience