The Importance of Differentiating Customers

We all do a million things to try and grow our business (some more successful than others), but have you ever stopped to think about the true value of your best customers?

Before we get to that, let’s first define what a customer is. Typically, all individuals who pay you are considered customers, as are those on free plans of indefinite durations. But those on limited duration plans (trial plans) are not. Similarly, individuals who obtain goods or services but generate no revenue due to the application of discounts, coupons, or special offers are frequently also considered customers.

Types of Customers

Customers

A customer is considered a new customer at the time of their first transaction; if the transaction spans a period of time, they are considered a new customer at the initiation of this period. Thus an online retail customer would be considered a new customer at the moment that they complete their first purchase, whereas a subscription-based business customer is considered a new customer when the subscription is initiated.

Returning Customers

A returning customer is a customer that has previously purchased goods or services from you and is making a subsequent purchase. In the case of a subscription business, customers who are in-plan and making regular payments are also considered returning customers.

Distinct and Unique Customers

Distinct customers and unique customers both have the same meaning: the count of unique customers within a given time period. For example, if on Saturday 20 different individuals make one purchase each from you and one individual makes 11 purchases, you had 21 distinct customers on Friday (one of whom is much more valuable to you than the others).

Customer Behavior: Why it's important

Understanding customer behavior is critical to growing a business. A business with 2,000 individual sales among 2,000 different customers should be managed differently, and the customers treated differently than one in which most of the revenue is generated by a handful of high-value customers.

Differentiating Customers

Differentiating between new and returning customers is one of the first things you should do when growing a profitable business. Most successful businesses have a returning customer base of 25% within the first three years of opening – it seems like the obvious thing for new companies to do is attract as many new customers as possible to gain the most visibility but the data shows returning customers make up 40% of total revenue.

To convert new customers into returning ones, there are several well-tested techniques. A good rule to follow is to spend a quarter of your marketing budget on encouraging return behavior. If you do this, you can increase your customers’ rate of return from 1.6 times to as high as 2.6 times. It’s much more productive for your bottom line than it is to acquire another quarter of new customers.

Customer Lifetime Value

Focusing on increasing your Lifetime Value can sometimes seem like an exercise in futility –“Why should I put so many resources towards the customers I already have when I need to grow my customer base?” – but you’ll find that when you dedicate the time to your existing customers, the returns will last over the lifetime of your business.

Learn more

To learn more about the value of returning customers, check out our infographic and keep an eye on our blog for more e-commerce best practices.

About the Author: Mark Uzunian is a marketer and copywriter at SumAll. When he’s not writing for SumAll’s blog, he’s writing tweets @sumall.

 

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