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Determine the Characteristics of Your Best Customers

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Determine the characteristics of your best customers.

How do you identify the characteristics of your best customers, so you can generate more revenue?

Recently, a company hired me to promote an online conference. With Facebook ads, I can target Facebook pages similar to the business’s page and other cold interests, but instead, I asked the owner to send me their customer and email list. I uploaded these lists to Facebook and then created a look-a-like audience based on their lists. Later, I will explain why I did this versus targeting cold audiences who aren’t familiar with the business.

Understanding your best customers helps your business in a variety of ways:

  • Helps generate more revenue for your business
  • Attract new customers to your business who are similar to your best customers
  • Generates a higher response rate from your advertising
  • Save money on advertising by not targeting people who are most likely not going to respond.
  • Generates more revenue and profit for your business  

How do you determine the characteristics of your best customers?

If you want to identify your best customers, there are 5 different ways to segment a customer database.

–Geographic Segmentation

Where are your customers located? You can segment geographically by country, state, zip code, neighborhood, block, and even street.

–Demographic Segmentation

This is segmenting by age, gender, education level, income level, occupation, type of housing.

–Psychographic Segmentation

these are lifestyles, attitudes, beliefs, value systems. Also, think about activities, interests, and opinions.

–Social Segmentation

This is segmenting by culture, subculture, social class rank, peer group reference.

–Behavioral Segmentation

This is the most powerful of the five types of segmentation because it is based on people’s behaviors. Behavior segmentation focuses on the actions people take. This can be transactional data. It can be the time the transaction happened, the method of response, types of products purchased, what promotion they purchased from, etc. Online this can be websites people visit and follow, email lists joined, types of content consumed, products purchased, and Facebook pages and groups. 

What is even more powerful is when you start using all five different types of segmentation together. This allows you to hyper-focus your advertising on your ideal customer. 

For instance, we can identify our ideal customer as a male between the ages of 35-45, who has a beard, has a household income over $75,000, and likes the Dollar Shave Club on Facebook.  

Further define the characteristics of your best customers

If you have a customer database, you can identify your best customers by the monetary amount each customer has spent with your company. You can do this with a simple query and then sort by the total amount spent. Understanding how much your customers have spent can help you determine who your best customers are.

But there is a calculation that is even more accurate than segmenting by the monetary value.

What if you could determine who your best customers are by the total monetary amount spent, how frequently they purchase, and how recently they purchased from you. This gives you a much better understanding of your best customers based on transactional data (Behavioral segmentation). 

For this calculation, it is called the RFM calculation. It stands for Recency, Frequency, and Monetary calculation. Points are awarded for each of the 3 components of the calculation. 

Each customer gets points for each transaction, the total spent, and how recently they made each purchase. Each customer earns more frequency points if they purchase more often from you.

For instance, a customer who has purchased from you 10 times will have a higher frequency score than a customer who has purchased only 3 times from you.

A customer who has purchased within the last month will have a higher recency score than a customer who purchased a year ago.

And a customer who has spent $5,000 with a company will most likely have a higher monetary score than a customer who has only spent $250.

The calculation gives each customer a score for their Recency, Frequency, and Monetary value. Once the customer has these 3 scores. Each of the 3 scores are added together to give each customer a total score.

Once each customer has a total RFM score, we sort by the customer’s total score. This tells us who our best customers are.

Determine Your Best Customers

Once we sort the customers by their RFM score, we can now identify the top 1% of customers, 2%, 5%, 10%, 20%, etc.

Once we know this information, then we can learn more about our best customers. Once we know who is the top 1% of customers, it allows us to do a couple of things.

–       Use the other four types of segmentation, geographic, demographic, psychographic, and social to learn more about our customers.

–       Target promotions to only our best customers. – these can be exclusive high-end products only for your best customers.

–       Find more customers, similar to our best customers.

–       We can implement marketing strategies to move our customers up to the next level of customer. For instance, can we develop marketing strategies that move customers in the top 20% into the top 10%, and for our top 10% of customers, can we move them into the top 5%, etc.

Understanding your customers at this level helps you develop even more profitable marketing strategies for your business. This enables you to create better campaigns, even if you are developing plans to acquire new customers or focusing on current customers.

Back to the Facebook ad Example

To promote the online conference, I created Facebook look-a-like audiences based on the company’s customer and email list, rather than target cold interests.

To clarify and further explain why I created look-a-like audiences, here are a few other ad campaign parameters.

–Limited Ad Budget 

I had a limited ad budget. If I had a bigger ad budget, then I would have targeted both Facebook Look-a-Like audiences and cold interests.

–New Ad Account

The Facebook ad account was relatively new. This absolutely affects ad strategy. Facebook gathers data on who is responding to your ads, the types of ads, and the ad objectives. If setup correctly, over time, this helps Facebook target your ads to people who are most likely going to respond. This improves the results of the ads. Being this was a new ad account, I didn’t have the luxury of leveraging previous ads and audiences to maximize this particular campaign’s results.

–Limited Time to Promote

Finally, I only had a few weeks to promote the online conference. Normally, this is adequate time for a promotion for Facebook ads. But the new ad account had very little data to leverage and a limited budget, so I had to maximize the available resources.

So, by using the email and the customer list, I created look-a-like audiences that were similar to people who were familiar with the company. The look-a-like audiences that Facebook created were warmer audiences than if I targeted cold Facebook interests.

In conclusion, understanding your best customers is critical to your success today. It provides competitive advantages and lets you create marketing campaigns that generate higher results along with more revenue and profit.


Are you building your email list?

According to the Direct Marketing Association, email marketing yields a 4,300% return on investment for businesses in the United States.

ExactTarget reports for every $1 spent on email marketing, the average return on investment is $44.25.

One of the most profitable ways to build your audience is to increase the size of your email list.

Discover 101 Ways to Increase The Size of Your Email List. Download the Free Report! 

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