Classify the customer with an RFM analysis

With this type of analysis, you can quantify who your best customers are. To do this, three classification factors are used: how long ago they bought it, how often they buy in a given period, and how much they spent. It’s pretty good information to know how they work and later very applicable to run campaigns and promotions as it serves both to segment who you send the promotion to and to measure the result.

How then is all this information to be interpreted? Groups are usually formed and rated from one to five. Those with 5-5-5 are the ideal. A common approach is to think of customers who have high monetary value, are high spenders, have significant footfall, and have not purchased from me for a long time or are about to leave. Then you need to launch a special campaign for them.

Working with all of these variables provides key information about each customer. We will see that there are high-frequency customers who spend little, whose monetary value is low or medium but buy many times, and customers who make few but very large purchases. These two groups are separated because it is convenient to treat them differently. I have to set an alarm for someone who buys from me very often and little by little, when I see that he hasn’t done so for three months. For the one who buys twice a year, no. how do you deal with everyone For the one who buys less often and more often, you should focus on campaigns that help you increase your ticket, for example, through cross-selling. For someone who buys heavily and for long periods of time, you need to think of strategies that will encourage you to improve your buying frequency. In this case promotions.

Find your most profitable customers

In addition to purchase frequency and average ticket, which the RFM analysis gave us, you need to identify your best customers based on two other key variables: the profit margin they leave you and their path forward.

profit margin
Each customer leaves us a unique gross margin: the difference between what the product costs us and the price we sell it for. There are customers who only buy promotions and who are less profitable than regular buyers. But be careful because you also have to look out for economies of scale, since there may be a not very profitable client, but who will give you volume and make some services profitable, e.g. B. to send a truck to a certain area very large customers.

customer fee
Or customer lifetime value. It’s about looking for automated ways to measure the journey left for a customer in the future. For example, we run a very powerful study based on the INE Family Budget Survey, which tells us what households spend on different product categories based on what they are like and what types they have. This allows us to conduct an evolutionary study. When I know that households spend an average of 150 euros a year on home improvement and for those with high incomes it’s 800 a year, if I have a customer who spends 400, I already know that half of them buy it from me and that’s quiet in a Competition. That gives you the measure of the true value of the customer.

The same applies to companies that are active in B2B markets. We’re now working with an industrial supply company and creating templates of how much their customers spend on their products versus their competitors’. This helps us know how much each client may be worth and if I’m interested in investing in their care. And how much margin can I be willing to give up in exchange for more volume?

Measure your customer satisfaction

That customer satisfaction is the key to predicting their level of loyalty is nothing new. To achieve this, current customer insight tools offer you new ways to determine this level of satisfaction with your product and service offerings. And above all, new ways of recognizing needs that have not even been explicitly expressed to you (latent and not explicitly unmet needs).

Or to put it more simply: what he really wants and what he doesn’t say when you ask him what he wants. The key to recognizing that gap between what you say you need and what you really need is knowing what to ask to get that answer.

There is a widely used metric called NPS (Net Promoter Score) that can be determined by asking a very simple question: Would you recommend our product to another friend? It is advisable to do this because people can say they are satisfied or not but behave differently in the moment of truth.

In order to avoid possible abandonment, it is important to find out what the client is thinking and feeling, what he is really saying and doing, what frustrates him and what motivates him. Do not limit your measurement to getting a general index, you must classify the customers and in both cases look for the results by segments. Get averages for different customer segments and also look for the extremes, how many do I have that are above or below average and for what reason.

Improve the management of your sales network

In B2B, customer knowledge is often only in the salesperson’s head and if it is not stored in a system, it is not used. Another common mistake is encouraging sales reps to acquire new customers and increase invoice volume without evaluating who the most profitable customers are. How do you get the most out of your sales?

A medical laboratory looking to introduce a new drug needs to prioritize and analyze which hospitals and clinics the new drug has the greatest sales potential. Next it is necessary to define what is called Go to Market, the arrival on the market. That is, what is the commercial logistics you will set up. How do you prioritize efforts, how often should you visit or need to visit that doctor or hospital that has more potential clients versus this one that has fewer potential clients?

Optimize routes
These are important decisions for the future of many companies. We work with an industrial supplier that has 60,000 customers. Some make very low accounts and others very important orders. They are very scattered customers, they are all over Spain. And the logistics cost is very high. Logistics is a key factor for them. It’s also a very mature market. We carefully measured each client’s costs, margins and growth potential. As a mature market, if I choose one of the competitors, they take another one from me. I have to decide which customers I want to give up, make them a slightly higher offer and go for someone else that has lower logistics costs, uses the truck route or has high potential.

Make a decision
Another key concept that you need to convey to your sales team in B2B markets is that they need to have a very clear understanding of who is involved in the purchase decision and what drives each individual. In a company of a certain size, it is common that the decision for certain products is made between the technical area that applies it and the purchasing area that determines the price. So you need to consider the goals for each of them and be able to use them later in the sales process. For example, there is always a tendency to think that buyers are only interested in lowering the price when perhaps the goal is to reduce suppliers. You need to know this in order to use it to your advantage. Usually, people try to sell by talking about the product itself, rather than using buying motives or customer goals. For this reason, the best way to feed customer intelligence is to ask them.

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