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March 26, 2024

How to get more Money from your Most Valuable Customers

80/20 Your Customer List

So the thing I want to talk about today is that not all customers are created equal. Just like anything else in the world, especially in the world of e-commerce or any online business environment accelerates this times two, I would say times 10, there is a power law aka 80 20.

So you will find, of course, like anything else that as well as products, customers obey the same kind of rules, that the top 20 per cent of your customers probably give you 80 per cent of your profit, et cetera.

Small businesses fail to create customer lists

So, I’ve just had a bit of lunch at a local greasy spoon in North London here in Kentish Town. It’s a place called Troy Cafe, just to give them a shout-out. Delicious chilli con carne on a jacket potato and coffee for under 10 pounds. Very good. Now I bet anything that those guys do not have a customer list.

They’re a typical small business. They’re working hard. They’re slightly off the beaten track. So literally just off the high street here, this is the main drag. So in E-commerce equivalent would be that they do not appear on page one for their main search terms.

Here’s the thing. Customer lists are incredibly powerful and valuable, but that’s something everyone knows.

First thing, if you’re not collecting customer lists, you need to do everything in your power to do that. If you sell on Amazon, obviously they are primarily Amazon’s customers and it’s hard to do that. There are lots of ways of doing that. I’m not going to reiterate those now.

All customers are not created equal – 80/20 customer lists

Like anything else in the world, especially in the world of e-commerce or any online business environment accelerates this times two, I would say times 10, there is a power law aka 80 20. Customers follow the same kind of rules, which is to say that the top 20 per cent of your customers give you 80 per cent of your profit, and so on.

How to identify your best customers from a list? 

Now, how do I identify the top customers in a customer list? Well, obviously how much money they spend with you is important, but there’s a really old school, but really powerful formula. Very simple. But if you apply it and they do something with it, it’s going to potentially transform your business.

The RFM Formula

It’s R, F, M. R is recency, F is frequency and M is money. So the amount of money somebody spends with you is easier to track. Recency and frequency imply that you’re tracking when the transactions happen and you can use various bits of software to figure this stuff out actually, I’m not going to go into the technical details.

The general principle is more important because most people don’t do anything about this. somebody’s bought recently from you, they’re much more likely to buy again, of course.

Potential value vs likelihood of conversion – Money vs Recency

If you want to be more refined about it, I would say the amount of money somebody spent gives you the sort of potential value as a customer, if you can persuade them to buy again.

But of course, if they haven’t bought from you for two years, the chance of them responding to any kind of outreach in marketing terms, whether you retarget them on Facebook all the way through to just sending them an email, is much lower. So it’s less return on your effort or less probability of a conversion.

Frequent customers are more valuable long-term

Frequency also indicates that they might be a very valuable customer to have if they keep buying because over time the lifetime customer value probably will build.

So I would say the frequency at which they buy and the money they’ve spent is an indication of their potential value.

Recency gives conversions

But recency is important. I would say rather than saying more recent customers are more likely to buy, I would say old customers you haven’t bought for a while are less likely to buy. So if you’ve got a list of customers that’s over a year old, and haven’t bought from you for a year or two years, I’m not saying it wouldn’t be worth reaching out to them potentially, especially if they’re high-value clients in the past, but the chances of them buying are much lower.

So if you want to be refined about it, you’d look at filtering out people who aren’t recent customers, and then you focus on the people with the highest frequency, which is the potential highest value. Of course, it depends on your product and your category.

If you have a list, make offers!

So it’s a quick simple formula, but it is powerful. And most people don’t do anything about it. First of all, they don’t have a customer list, which is terrible. So that’s you do everything in your power. We won’t discuss that today.

But the second thing is if you do have a customer list, filter it and order it by recency, frequency and money, even if just one of those things will help. And then follow up, do something, contact people with an offer. If somebody spent $1,000 with you and your average customer spends $20 on one widget once, guess what? It’s worth spending considerable time, money, and effort trying to reach that person, and persuade them to buy more from you.

A missed e-commerce opportunity

I, back in the day, sold items at about 20 each, but they happened to be the kind of thing- more by luck than judgment, but if I tried to engineer it, I would do it again- that would be bought by an entire orchestra or choir. So they’d buy 50 or even 100 at a time. And obviously, the people who bought 100 were way more valuable customers.

Now, being an ignorant Amazon seller at the time, I did nothing with this information. I didn’t follow up with them, even though my wife, who has a lot of common sense, even if she’s not a business person said, “Why don’t you email those people?” -which I should have done. Even back in the day, you could even get their email addresses. So don’t make my mistake.

Make an effort! Create relationships with high-value buyers

If you have somebody who’s buying a lot of stuff from you in one go, for Goodness’ sake, follow up with them and make them a nice juicy offer, create a relationship with them, even one-to-one. Don’t be afraid of doing things that don’t scale when you start off, I can’t remember who said it, but do things that don’t scale is a great starting point when you’re doing something new.

And then they say, nail it, then scale it. You can scale it up afterwards, but if you have valuable customers, contact them more often and make them offers. It’s pretty much that simple to start with. Don’t ever complicate this stuff.

Hope this inspired you to go and get more value from your customer lists. Thank you for listening.

The 10K Collective Mastermind

Hi, I’m Michael Veazey from Amazing FBA and I’m the leader of the 10k Collective Mastermind, for private label sellers and product brand owners who sell at least half a million dollars a year or more on Amazon.

Over the last five years we’ve had members triple their revenue in one year, grow to eight figures and one member get to a seven-figure exit. Now we’re taking it to the next level. I’m excited to introduce the 10K collective Uber mastermind.

It’s a unique combination of peer group support in person and online and specialist coaching.

If you’re ready to take your business to seven figures and beyond, just go to TheAmazonmastermind.com. to find out more today.

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Michael Veazey


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