Know Your Customers: Customer Profiles¹
Who are your best customers? You may know which customers generate the most revenues, and even the most profits, but do you really "know" your best customers? The more you understand about your great customers, the more you can target other potentially great customers and win their business, too. A customer profile is simple tool that can help you better understand current customers (or for new businesses, the customers you wish to target) so you can grow sales and grow your business.
Let's start with an overview. Customer profiles are a collection of information about customers that help you determine why people buy or don't buy your products and services. Customer profiles also help you develop targeted marketing plans and help you ensure your products and services meet the needs of your intended audience. There are two basic types of customer profiles:
- Demographic profiles. These are based on characteristics like age, gender, income levels, marital status, place of residence, etc. In marketing terms, demographic profiles tend to break down customers into age, social class, and gender. For example, younger buyers may make buying decisions based on how they feel the purchase will cause them to be perceived; older buyers may focus on quality or safety. Wealthy customers may be willing to pay a premium for service or for a perceived value, while lower income customers may be more likely to focus on price.
- Behavior profiles. Behavior profiles focus on actions: which types of items were purchased, how frequently items are purchased, the average transaction value, or which items were purchased in conjunction with other items.
To make it easy, a demographic profile tends to answer the question "Who?" and a behavior profile answers the questions "How?" and "What?"
Most companies create both types of profile in order to get a better sense of customer behavior and to better define the characteristics and actions of great customers.
Demographic profiles are fairly easy to create. If you service a specific geographic area, use online tools to gather population and economic data. (The Census Department website provides a broad range of demographic information.)
You can also easily evaluate your current customers; check out your previous six months' sales, identify your largest customers, and create a profile of those customers. (If you run a retail business or a restaurant that might be difficult; at the same time, since you likely serve a fairly broad demographic, using the averages for your area may yield decent data for you to analyze.)
Then go one step farther and add subjectivity. For example, if you provide financial services, your best customers are likely to be professionals or business owners with a high net worth. In all likelihood you already know your customers better than you think; the problem is you haven't actively thought about the demographics of those customers.
Behavioral profiles can be more subjective. But you can apply some objective measures to the process of developing a behavioral profile. While there are several ways to approach behavioral profiles, one simple method is to evaluate the frequency of purchases and the value of those purchases.
- Why is this approach helpful?
- Customers who purchase frequently are more likely to buy again than customers who do not (a simple premise, but one many business owners ignore)
- Customers who purchase multiple items are more likely to purchase again and to purchase multiple items on their next visit Customers who spend higher relative amounts per transaction tend to purchase more frequently in the future (if you continue to meet their needs, they are likely to become even better customers over time)
Start by evaluating the frequency of purchases by customer. (Again, if you run a restaurant this may be tough; instead consider evaluating how frequently specific menu items were purchased; that will give you a sense of what customers enjoy most.) Rank your customers from highest to lowest in terms of purchase frequency.
Then, evaluate total spending (per a specific period of time) by customer. Rank from highest to lowest in terms of dollars spent.
Now compare the two lists. In many cases the results will be similar, but not in all cases. Certain customers will make infrequent but large purchases; others will make frequent but small purchases. (Both are good customers.)
Evaluate the Results
Now look at your demographic profile. Where do your best customers fit in terms of demographics? What characteristics do your best customers share? What age or gender characteristics do they share?
Then take a look at your current marketing strategies. Do you target your best customers? Are you spending significant sums advertising to demographics that do not purchase frequently or in high-dollar amounts?
If so, you have two basic options:
- Change your marketing strategies to better attract demographics you currently fail to attract, or
- Change your marketing strategies to better focus on the demographics you currently attract so you can grow your business
In reality you have three options; you can modify advertising that doesn't work, enhance advertising that does work, and use customer profiles to identify your best customers, identify your worst customers… and know how better to market to and serve them.