It’s no secret that your best customers drive a disproportionate share of your business. Perhaps you’ve heard of the Pareto principle or “80/20 rule,” or seen some internal metrics on the difference between your superstar, platinum-tier customers and… everybody else.
But how much better are those customers, exactly?
It turns out that for a wide swath of retailers in the fashion, apparel, lifestyle, and beauty verticals, the top 5% of customers (by lifetime value) generate a whopping one third of total revenue - and in some cases, up to 40%.
This means that a small percentage of customers is bringing in a hugely outsized portion of your total top line. For example, if you had 100 customers and $100,000 in annual revenue, then your 5 best customers would bring in around $30,000 to $40,000 every year.
What does this mean for your business and how can you use this knowledge to improve your customer acquisition and retention strategies? Here are some suggestions, plus a few real-world examples from leading e-commerce retailers.
Not all customers are created equal.
Do your top customers come from SEM (Search Engine Marketing)? Do they find your site through a certain fashion blog? Do a lot of them live in San Francisco? Finding the answers to questions like these will help you understand who your best customers are and how you might find more of them. One e-commerce retailer, for example, is using Facebook lookalike campaigns to target Facebook users with similar demographic attributes to their top customers. Knowing where your best customers come from can help you set the optimal CPA (cost per acquisition) for different marketing acquisition channels, campaigns, and promotions. If you know a customer is likely to become a superstar, it makes sense to spend a little more to acquire him / her.
Prioritize customer service.
Make sure that your top customers are getting the attention they deserve. One fashion retailer bumps top customers to the front of the customer service queue and has a senior member of the customer service team take their calls. They also occasionally send handwritten thank you notes to their most valuable customers.
Reward your top customers.
Show them the love with goodies like early access to new fashion collections, VIP status, or free shipping. These customers are prime candidates for a “surprise and delight” campaign. For example, A Custora retail customer recently invited its top customers to an opening of a new store.
Make sure you don’t lose ‘em.
What happens when one of your best customers suddenly stops buying? Or starts buying much less? Custora helped a food-ordering company realize that several of its top users were at risk of becoming inactive. Its marketing team then called these users and learned that a few of them had a bad experience with a certain restaurant. The marketing team offered a free meal to these users and worked with the restaurant to address the underlying issue. The result? Happy diners who were back to ordering food as usual.
Segment and personalize communication with customers.
Your top customers are different, so it makes sense to communicate and market to them differently. One e-commerce retailer personalizes its on-site experience and merchandising for top customers so that they are shown a different, premium product selection. Another retailer sends different marketing emails to the top, middle, and bottom customer tiers, each with different products and promotional offerings. Bottom line is that retailers can, and should, use “top customers” segmentation to tailor their marketing communication across channels.
Coming up soon on the blog, what percentage of your revenue is generated by the bottom 50% of your customers. Any guesses?
** These findings are derived from data spanning 60 million US customers, across retailers in the fashion, apparel, lifestyle and beauty industries.