Database Marketing – Finding Profitable Customers

em>By Tim Little

The Overview

The ideal customer is the one that spends the most, comes back frequently and has purchased something recently. This is the most profitable customer and our marketing strategy is to attract as many of these customers as possible and keep them loyal and with us a lifetime. We become proactive by using marketing strategies that help us to create incentives and control the behavior of our most profitable customers.

·     Some customers can be very profitable but drop off our database after their first purchase. Customers that purchase cars may only buy one every 4 to 5 years or homebuyers may only purchase one house in a lifetime. It is impossible to maintain a profitable long-term relationship.

·     Some customers maybe only marginally profitable, but are loyal like banks and gas purchasers.

Customer Profitability

Profitability is determined by calculating the total purchases and subtracting the costs incurred by this customer during a certain period of time over the past year or month.

You can determine the profitability of a customer by segmenting them into groups by profitability and revenues the top tier could be the top 20% as far as profits since they produce 80% of the profits. The lowest tier would be the losers that often produce 0 profits. You determine how to make the groups with email list broker based on lifetime value, revenue amount of money lost because of refunds.

Segmenting Your Gold Customers

Most businesses have gold customers and these are the backbone of any business and this is the group you must maintain if you want to stay in business. To single them out for campaigns or webcast services would be a mistake since they may have reach a point of diminishing returns. It may not be possible for them to purchase anything more from you. What you should do is to find ways to offer then rewards or incentives. Provide better customer service and reward them so they will not switch to you competition. Programs should be concentration on retention and staying a long time with you.

Dealing with the Bottom Tier

The bottom tier (the losers) do not pay their way and they rob you of your profit. Very few companies either know who they are and they only way to know this is to develop a customer history in your customer database and can group customers into revenue segments. Next you determine their lifetime value by calculating purchases over the last three years.

Author Biography: My professional direct marketing and mailing list services experience began in magazine circulation management from this I honed my skills in list purchasing, testing, and analyzing. I learned the importance of direct response planning and budget forecasting and most importantly, providing a follow-up with back-end analysis, fulfillment of orders and inquiries. I also gained some valuable job experience with Jackson National Life Insurance as Marketing Database/Direct Mail area and with Alumni Association of the University of Michigan as Membership Manager.

Sincerely,

Tim Little