Customer classification is the act of identifying common traits within a group of customers. It answers the question: what is similar about these companies and their purchasing habits?
For any organisation to succeed, needs daily business development activity. Unfortunately we all suffer from a lack of time. Therefore, your precious time must be spent on activities that will yield the highest chance of success. Prioritizing your customers is key.
Over the Christmas holiday I read the excellent Undaunted by Ed Zier. This harrowing story tells the true experiences of a company embroiled in the 9/11 World Trade Center attacks. While a tragic tale the book also highlights the resilience of the survivors and the subsequent rebuilding of their company. I cant recommend it enough.
In amongst the bravery of the employees the book details the growth of Baseline an early financial analytics company. By doing so it includes gold nuggets of business development advice. In this instance the prioritization of your customer base.
Why do we need to classify our customers?
As well as being an accomplished author Ed was the Head of Sales at Baseline during the attacks on the World Trade Center. He knows a thing or two about developing a business and running a sales team.
Without classification or clarification your team will spend their time across a range of customers. Ideally focus on those likely to produce the most recurring revenue. However, Ed found that in fact customers were being treated equally. Regardless of their real value to the company.
Consequently, there were instances of his team unwittingly prioritising lower value customers.
It’s easy to see that classifying your customers is important, letting you focus precious time on the highest yielding customers.
How to classify your customers
Ed and his team measure their customers by the revenue volume as Bronze, Silver, Gold and Platinum. This included recurring revenue and an interesting pattern emerged.
- Bronze accounts cancelled 30% of time after year 1
- Gold Accounts cancelled 10% of the time after year 1
As well as being higher revenue earners, their Gold and Platinum clients tended to cancel less.
Clearly focussing on Gold and Platinum customers yielded the best results. Ed had a large sales force under his control. He changed the sales commissions to favour gold and platinum accounts, getting him a marked improvement in revenue results. Overall the new structure provided long term revenue stability.
Now it’s your turn
Ed’s story is a great example of how classifying your customers can have a huge impact on your sustainable revenue growth. Think about your own business. Where does most of your revenue come from? Which customers provide long term revenue stability?
Firstly consider classifying your customers by revenue. Perhaps there are other classifications that align with your company purpose. Ultimately classify your customers to make sure effort is spent on the highest potential of revenue return. I write a bit more about segmenting your customer base in an older post.
What are you waiting for? Grab a pen and start classifying your customers. Who are you Platinum customers and how can you make sure your team focusses on them?
Customer Classification
Are looking to begin your Business Development journey but are not quite sure where to start? Download my quick start guide to business development. This gives a series of simple activities to quickly set you on the right path.
For a definition of business development you can check out my take in this post here.
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