Joe Robinson: Bald Guy, Marketer, Self-Improver.

I originally wrote this piece for the blog over at BFBC; I like it a lot, so I put it here too and now you can read it in my corner of the internet. Enjoy!

Usually, we try not to pick favourites at BFBC. In your case though, you should absolutely be figuring out your favourite customers — by which I mean the ones that spend the most — and making sure they’re as happy as can be. This will have the knock-on effect of pleasing all your other customers too, but even if it didn’t we’d still encourage it all day long. Why?

Because your best customers are 16 times more valuable than your more average ones.

Does that sound impossible? Probably a bit, but I’m not just exaggerating and comparing your one-off big spenders to your tiddler customers who only spend a few quid. We’re talking averages here; you can’t afford to miss out on this. It still probably sounds made up, so let me explain. This is all true because of the Pareto principle.

The Pareto principle applies to any set of things or events that have a value or impact and how that impact is distributed. You have your big hitters that are responsible for a lot of that impact, and the rest who make a more modest contribution.

For example, 80% of people live on 20% of all the world’s land and vice versa (think New York City vs the Australian outback). The most generous 20% of charity donations (as in, 20 out of 100 contributions) add up to 80% of the money raised. The best 20% of all the footballers score 80% of all the goals. Because of that, you’ll sometimes hear it called the 80/20 rule which is a lot more catchy on Twitter. That’s what I’ll call it when I share this blog post there.

Getting to the point, this also applies to your customer base. 80% of your revenue comes from the 20% of your customer base who keep coming back to your store, and who spend the most when they do. If we add in some easy numbers for this example, you’ll understand it straight away.

Let’s assume your store sells expensive stuff, so your average order value is £1,000. To keep it simple, in a given month you make 1,000 sales for a total revenue of £1,000,000.

Based on the Pareto principle, we can expect: 

• 80% of the revenue (so £800k) comes from 20% of your customers (200 of them)
• and vice versa (the other £200k from the other 800 customers).

So we’ve got 200 customers spending £800k, and 800 customers spending £200k. Let’s work out each groups’ AOV dead quick-

• £800k revenue / 200 customers = £4k Average Order Value
• £200k revenue / 800 customers = £250 Average Order Value

Who knew? Turns out the difference between your big spenders and your more casual buyers is eye-watering. Obviously our made-up £1k sitewide AOV has exaggerated the effect a little bit, but if your site-wide AOV is a reasonable £50, your 80/20’d AOVs work out as £200 and £12.50. Do you even get out of bed for £12.50? I try not to. This logic is always worth following, no matter how expensive (or not) your products are.

Bear in mind, if you’re running the sort of store where people buy more than once (most of us), then you also need to be looking at customer lifetime value (LTV) as a stronger indicator of long-term value than AOV. For easier examples though, we’ll stick with AOV in this case.

Hopefully then, you followed all of that and you’re bought into your big-ticket buyers being the ones to focus your efforts on. Because even if you scare everyone else off (you won’t, but I know you might be asking yourself) you’ll keep the best 80% of your revenue and be able to grow it that much faster, because every extra customer equals so much more money being spent vs your smaller spenders. 

With that said, it’s no good having this knowledge with no sensible way of acting on it. To wrap up then, here are a few things you can do to get the most out of your loyal customers and attract more of them:

Talk to them

You can rarely go wrong sending a short message or survey to your best customers saying “you’re very special and we love you and we’d like to know what would make you love us too”, or however you can make that fit your store’s brand.

They might ask you to change the categories they can get to from the navigation bar, or to improve filters on your category pages, or make returns easier. Whatever it might be, if you can do it for them they’ll enjoy shopping with you more. You might need to incentivise them with an offer (doesn’t have to be a discount; how about a freebie with their next order?)

See if they’ll tell their friends

People have like-minded friends right? Given them a referral code that gives them and their friend(s) both some kind of incentive to shop with you. They’ll do the hard work for you, because they don’t get their freebie until they’ve enticed their friend into your store, which you know they’ll probably love. Easy.

Exclusive deals

This one’s a tap-in, but it works. Still, it doesn’t have to involve discounts. You can give them exclusive previews of new launches or sales, or offer them free delivery or a freebie when they spend £X in a time of year when sales are a bit quiet. They get a bit of a treat, you get to un-slump your seasonal slump a little bit. Everyone’s a winner.

Market to other people like them

If you’re running Facebook ads (or Google, but Facebook are even better at this), you can get the email addresses of your top spenders and use them to create a Lookalike/Similar Audience (for Facebook and Google respectively) which doesn’t include those customers but targets other people who are similar in terms of their traits and interests. That way, you can get your products in front of more of your ideal customers and reach new people, rather than pestering your existing ones too much.

Sound good?

Remember: if you try one of these tactics and it gets you even one extra customer or sale, it’s likely to be 4 times as valuable as your average customer and 16 times as valuable as your less-valuable customers that make up 80% of your sales. So any small success will have a huge impact on the bottom line.

You can even take your most valuable 20% of customers and 80/20 them again; it works out that 64% of all your revenue comes from the most valuable 4% of your customers! But at that point, we’re probably focused on too few people to really act on it. What it does mean though, is even if you got to a point where those £4k AOV customers were the norm, you can just 80/20 the figures again and focus on even more valuable orders, if that’s what you’re after.

If you’ve made it this far, you’re one of the 20% of people who actually reads 80% of the blog post! When you don’t get bogged down in the numbers, what I’m really saying is there are some customers who spend more, buy more often, and are super loyal to your brand. If you can keep them around by doing things they like, that’s great for your bottom line and it’s better again if you can get them to tell their friends about you who’ll probably love you just as much. 

Not just that, but if you improve your store so it’s more engaging for your big spenders, you’re likely to please your smaller customers (who are still the largest number of people by far) and they might even start sending a bit more of their fun money your way too. 

You know they say to take care of the pennies and the pounds will take care of themselves? This is the opposite of that. I encourage you to give it a go, or ask me for a hand if you don’t feel like doing it yourself.