Most companies spend the majority of their BI and analytical efforts designing marketing campaigns to specifically attract new customers. It is probably less common to look for the dead weight customers that may be responsible for more headaches than profit. With the high costs of marketing and advertising, a smart strategy is to focus on the quality of the customers rather than the quantity.
So how do you spot these dead weight customers? Of course, the type of relevant data that you have depends on your specific industry, but here are a few ideas to get the wheels turning:
Customer Service Calls – A big spender who complains a lot may be costing you more than he is worth. Each minute that your operators spend on customer service calls represent a decreased value in your customer. A good way to get a more accurate value of your customer is to consider both the costs incurred via customer calls as well as the amount that they spend.
Returns/Refunds – Returns will usually always result in the company taking a monetary hit in one way or another. There may be additional restocking fees or shipping and handling fees involved. In addition, returns take time to process which adds additional costs to the transaction. A customer may be a big spender and you may have valuated him as someone you will strive to retain, but it is important to also pay attention to the amount of returns or refunds the customer requests. Use the variables that are specific to your data set and determine the cost that is incurred for a return transaction and use this figure to determine a more accurate value of your customer.
Offer vs. Spending Ratio – Consider the marketing offers that you send out, are they bringing in a high yield? One clothing store that is located in my neighborhood sends me coupons for $10 off of any purchase. They are essentially giving me $10 for free. The goal of this offer is of course to get me in the store at which time I will likely spend five to ten times this amount. If I were to take this $10 coupon each time and spend exactly $10 in the store then the retail outlet would be smart to consider me a dead weight customer and discontinue sending me these offers.
I have presented a very simplistic view to encourage you to consider the different variables that can devalue a customer. It is important to also consider the other non-monetary valuations that can be placed on your customers such as referrals and influence. Just as in the above examples, you can put a value on these variables and continue to build the formula that you will ultimately use to put a true value on your customers.