How to Retain your most Profitable Customers

Businesses have a real challenge on their hands when it comes to customer retention. Firstly, customers are fickle. A high proportion of online customers shop the deals so building any kind of relationship is tough.

This is further complicated as customers hate it when they feel businesses are trying to win their loyalty. This muddied water is made murkier still by the fact that customers will only engage with roughly half of the loyalty programmes they sign up to. And view points-based systems very dimly because they understand how little they get from them.

Then there’s the fact that they’re not really loyalty programmes at all.

Finally, in addition to a loyalty vacuum and resistance by customers to any overt attempt to win their loyalty, the majority of online businesses don’t know how to engage with their audiences in the first place.

Beyond order confirmations, dispatch notices and sales emails, most customers don’t hear from the businesses they shop with. This is despite almost 70% of online customers wanting more communication from the businesses they shop with.

It’s not like retention can be ignored. Retained customers are significantly more profitable than new customers, spending 69% more. And more often. Plus the cost of acquisition is going up in line with the competition. 

So businesses need to retain their customers despite a lack of loyalty, and those customers do not want to feel like their loyalty is being earned. But those same customers also want more communication and for it to be personalised.

Easy.

Identifying your most Profitable Customers

Firstly, it’s important to note that profitability doesn’t necessarily mean customers spend the most.

A customer who spends hundreds on a major domestic appliance is making a tiny amount of profit by virtue of the fact the markup is only around 10%.

To determine who your most profitable customers are you need to analyse your customers’ order history. 

You need to look at the average order value and order frequency. And, as mentioned, you need to examine what products those customers are ordering. But you also need to look at things like discounts too. 

If a customer has higher than average order values but shops with you when you’re (a) in sale and (b) have a discount code, your profit on that order is going to be minimal.

While some profit is better than no profit, these customers are the ones you actually want to phase out of your business long-term. Your relationship with these customers has devolved below transactional as they no longer see the value of paying your original asking price.

You’re not alone in accidentally training customers to only shop with you when you’re in sale. However, these customers are not who you want to put your energies into retaining long term.

This level of analysis is essential if you want to build a retention strategy around the customers who make you the most profit.

Understanding your Profitable Customers

Having got a handle on what a profitable customer looks like you need to start to understand how to engage with them.

Firstly, you need to understand what motivates them to shop with you. Price, products and service are all obvious places to start. 

Identify any value-adds that you offer that competitors don’t. Examine everything you do, whether that’s free returns, real-time customer service or even a bag of sweets in every order. 

You’ll also have a good understanding of the kinds of products your most profitable customers like to buy. 

Finally, you need to understand how your customers prefer to interact with you. This could be difficult if, historically, your communications have been limited to emails and social media posts. However, your first-party data is there to be used.

By consolidating your data you can cross-reference customer profiles and your email reporting to identify which of your most profitable customers are engaging with your communications.

Key is to create as complete a picture as possible. The deeper the insight the better you can engage with your profitable customers and retain them.

Creating a single customer view using a customer data platform is the most effective way of doing this. You can pull data from across your entire estate including transactional data, customer profiles and communications.

From there you can create a detailed customer view of your most profitable customers. They can sit in their own bucket and you can create a VIP or loyalty campaign around them. You can also segment by their interests and purchase history to create highly personalised communications.

Retaining your most Profitable Customers

Once you’ve identified and segmented your most profitable customers you can start the work of actually retaining them.

Despite the emphasis most businesses put on growth, retention is significantly more profitable. Not least because you don’t have to spend any money on acquiring them.

In eCommerce, the customer acquisition cost (CAC) sits at around $45. The average order value of a first-time customer is $50. That means for every new customer you acquire there’s a good chance you’re making a loss. Especially if you opt for the common promotion of 10-15% off their first purchase.

This harks back to training customers to only respond to discounts and it severely cuts into the bottom line.

Boosting retention has a significant impact on your profitability. Nurturing your most profitable customers, even more so.

The trick is how to retain them. Bearing in mind customers don’t like businesses trying to win their loyalty, any efforts you make need to be subtle.

Or more to the point, focused around making those customers feel valued, rather than pressuring them to spend more.

Because here’s the rub. While points-based loyalty programmes can help retain customers, they don’t grow the customer’s lifetime value and they don’t nurture loyalty.

This is largely because customers know they have to spend consistently to get anything out of it. This transactional relationship does nothing to build a personal relationship between the customer and the business.

Value-Based Retention

If you want to keep your most profitable customers engaged and spending with you, any retention of loyalty programmes has to be value-based.

Don’t confuse monetary value with abstract value. 

While there are arguably discounts and other price-based incentives you can offer your most profitable customers, it hardly seems necessary.

After all, they’re already spending with you and making you a tidy profit in the process. This is about sustaining their interest in your business.

The main reason a customer stops spending with a business is because they no longer see it as relevant. That is to say, they no longer offer the customer what they are looking for. Price is a factor but product offering, service and added value all play a major role in the decision-making process.

Essentially you don’t want to make prices or discounts the only reason customers shop with you.

Instead, use your first-party data to identify what they’re interested in and build a retention programme around that.

That doesn’t mean building a bespoke loyalty programme for each customer. Providing you’ve segmented your customers, you can push relevant content to multiple customers.

But the idea is to make it as personalised as possible around their interests. Not just products.

Depending on what you sell, there are a number of different ways you can make your most profitable customers feel valued. Exclusive content or VIP experiences are just two.

Gift vouchers (with no minimum spend) for their birthdays and gifts at Christmas.

Resist the urge to give customers early access to sales. You don’t want to train these customers to only spend when your prices are reduced.

Rather than exclusive offers, think about exclusive products instead. Even limited edition products with your own branding can work surprisingly well if you have the brand presence.

Building Retention Campaigns

Once you’ve worked through building a database of your most profitable customers, and segmenting them you’re in a position to communicate with them.

From user data, you will know what channels work best for these customers. This allows you to create multi-stage long-term nurture campaigns that focus on delivering value. 

Providing you have a robust strategy behind the campaigns that can deliver content, exclusive experiences or products, your customers will feel the love. 

Backed up by the right CDP at your disposal you can adjust these campaigns depending on how your customers respond to them.

This means you can maximise your engagement and drive conversions by delivering something more than the hard sell.

To learn more about how a customer data platform with customer engagement functionality can help you to drive your business and help you retain your most profitable customers, get in touch to request a demo.