The 80:20 rule, also known as the Pareto principle, has beenaround for decades from a marketing perspective. It still remains one of themost important principles of CRM Marketing.

The classic use of pareto in marketing is that 80% of salescome from 20% of customers. I’m yet to come across a client that doesn’t havesome form of Pareto, the ratios may differ slightly, but the basic principle remains.A small number of customers generate the vast majority of a company’s currentand future sales and profits.

Ignore this small number of customers at your peril and ifyou lose a significant number of them your business may never recover.

So, the key question is who are these critically important smallnumber of customers or to put it another way who are your best customers? Andwhat should you be doing with your best customers?

How to identify yourbest customers?

‘Best’ is a subjective term and it is up to each company todecide what their definition of best customers will mean. One way to do this isto look at the last 12 months of customer spend data and to break it down bydeciles of customer volumes by spend. So, you’ll have the top 10% of customerwho have spent the most right the way through to the bottom 10% of customerswho have spent the least. For each 10% of customers you’ll have theircorresponding % of total spend. This is really just the starting point, fromthis point onwards it is a case of playing around with the data to decide what yourversion of 80:20 is.

You might also want to include an element of LTV (Life-TimeValue) into your calculations or include elements such as AOV (Average OrderValue) or frequency of purchase. You may also decide to include some sort of indicatorof future potential spend. Every company will be different based on theircustomers and market characteristics.

What insight can yougenerate on your best customers?

Once you have settled on identifying who your best customersare the next step is to understand as much as you can about them. They are veryunlikely to be a homogenous group. So, it is imperative that you learn everythingyou can about them and where appropriate separate them into sub-groups.

Who are they in terms of profiling? For B2C customers you canlook at demographic data such as age, gender, location, lifestage, income etcand for B2B customers you can look at industry type, job title, turnover,employee size etc.

What do they buy? What products and categories do theypurchase?

What are their key metrics? Look at the retention rates, howlong they have been a customer, frequency of purchase, average order value etc.

How engaged are they? Do they respond to your CRM Marketing activity?How often are they on your website? How often do they redeem incentives?

How much more could they buy from you? Your best customersare likely to be your best source of additional revenue. You need to try toestablish what SOW (Share Of Wallet) you have with them and how much headroomfor more spend do you have.

And with all of this insight that you generate you need to becomparing your best customers to your average customer. How different are yourbest customers to your typical customers?

What do you do withyour best customers?

As I said earlier it is highly unlikely that your bestcustomers are a homogenous group so it will be difficult to treat them as agroup to communicate with per se. But you may decide that you want to provide biggerrewards or incentives to them. You may decide that you want to give themexclusive content or invites to events.

The one thing you must do with you best customers is tomeasure their performance on an ongoing basis and look for any sign that theirspend is dropping or that they might be churning. You should look to set uptrigger programmes to head off any possibility that you are losing them as abest customer.

Can you find more people that look like your best customers?

Understanding your best customers should be critical to anyfuture prospecting and existing customers growth activities. From a prospectingperspective you should be trying to recruit new customers that look like your bestcustomers or who have the potential to become a best customer.

Similarly, you should be trawling your existingcustomer base to find those customers who have the potential to become a bestcustomer but who currently are infrequent or average spenders. You should considerdeveloping bespoke communications with appropriate offers and incentives tonurture these customers through to becoming a best customer.

Further Reading

If you would like to find out more about how to measure CRM Marketing ROI in the longer term then read this article.