3 case studies on identifying your most profitable 20%
Here’s a guideline worth knowing: It’s called the 80/20 rule. "Generally 80% of a firm’s income comes from 20% of its clients," according to the American Institute of CPAs.
Your ideal customers reside within that 20%: They are the ones who spend the money. But the equation is a little more complex. Maybe there’s a customer who does not spend the most, but has stuck around the longest. Or a customer who could become more lucrative somewhere down the line.
There’s a sweet spot for every business, an ideal customer that is worth pursuing and worth hanging on to. Here’s how three small businesses are finding that magic partner.
Jeff Matt, President and Founder
Victory Auto Service & Glass, Ham Lake, Minnesota
WHO: For Victory, it’s the ones who stick around. Matt tracks customers over time to be sure that the business is growing but also to identify those with the greatest return rate. "We look at the number of visits over a period of time, as well as the overall dollars spent by household," Matt says. These are the best prospects.
WHY: "We generally feel that the best customer to have is a loyal one. Automobile repair problems generally arise unannounced, so if we have a loyal, committed customer we know that whatever problems arise for them, we will get that work, as well as their referrals," Matt says.
HOW: "We collect their email address on write-up, which allows us to thank them, survey them, and send them monthly promotions. We also initiate an opt-in for text messaging correspondence and reminders," Matt says. A Facebook account has drawn hundreds of Likes and Friends: These are the customers with the best longevity, and the ones who have the greatest trust in the firm. By building relationships in an industry where trust is paramount, Matt is able to cultivate long-term ties with his best customers.
Matthew Smith, Owner/Director
Longacre Leadership, a summer camp for teens in Newport, Pennsylvania
WHO: "Our ideal customer is a wealthy parent, probably a mother in her 40s," Smith says. She’s looking for an experience that will foster her kids’ resilience, decision-making, and communications skills.
WHY: What makes this person a great catch is that she can understand a long-term investment. A mom who sees summer camp as a cumulative experience will send a child for three summers or more. Smith’s ideal parent is a community influencer. Maybe she serves on a board or engages in other aspects of her community. In effect, she’s a marketing ambassador for the camp.
HOW: Smith’s idea mom typically does not find him through newspaper ads. Mostly she comes in via friend referrals, which Smith has been able to generate through email blasts. He doesn’t send a monthly newsletter, but rather reaches out to his existing base only when there is news to share, like a new program or a business update. This way, his messages carry more weight and people are more apt to share the news. "In a world dominated by flash, we are focused on substance," Smith says.
Julie Pocino, Director of Communications & Development
Barnabas Clothing Co., Pasadena, California
WHO: Men and women between the ages 25 and 35 with income about $60,000. They are "socially conscious and want their purchases to make a difference," Pocino says.
WHY: The company is socially motivated: A portion of proceeds go to fight poverty in Western Kenya, Africa. As a result, the target market is motivated "by both the style and fashion of our clothing, and by the ‘give back’ component as well," Pocino says.
HOW: "We believe that Facebook and Pinterest are the best social media to reach that age range and income bracket. And in our design process, we research what is trending with that age range, and look at other companies that are similar to us and see what they are offering. We are reaching out to them through our social media, and also trying to get featured in blogs and other media that we believe are targeted for those demographics as well."
For each of these business, the ideal customer is more than just a demographic, an age-and-income calculation. Values count too: Whatever the mission of the business, each of these entrepreneurs is eager to connect with those who best understand their values. That’s where the true connections seem to reside.