3 ways to analyse customers for the benefit of profit
Mon 10 September 2012 - 10:22 amAdvice | Managing | Sales
Being able to delve deeply into the behaviour of your customers can bring big rewards. The more you understand who your customers are, what drives their choices and what they expect from you, the better.
Because customer behaviour is fluid it needs to be monitored regularly so that your products and/or services remain relevant to them. You may not have realised it, but your accounting software can provide valuable customer insights as it is tracking everything that occurs in your business; every transaction and every quote or invoice. The key is being able to know what you want to find out from that data and how to make the most of the results.
Consider the impact that customers who consistently return products after purchasing or those that never pay you on time have on your operation. Alternatively, consider the value you gain from loyal customers who return to your store repeatedly and tell others about your product or service.
This article covers several tips for analysing your customers behaviour that I hope will enable you to gain vital insights required for developing effective customer marketing initiatives, refining your business plan, improving cashflow or even implementing better stock rotation.
Business reports for getting to know your customers better
Your business plan should already include details of your target customers, such as their gender, locality, age and status. It’s likely to also cover how your products or service fulfils the needs of this group and how you communicate with this audience. But how often does you business revisit this plan and assess its effectiveness today?
While most businesses are well versed in the importance of knowing their financial position at any point in time by using key financial reports such as cashflow and profit and loss, reports that focus on customers aren’t given the same prominence. Accounts Receivable shows all the money owed to the business including details of customers who owe money. But there is a lot more your accounting software can show you than how customer debts relate to cashflow.
Some key information about your customers that offer critical insights are:
- Individual customer sales history – analysis of what a customer has purchased and how frequently they make purchases giving you an indication of how loyal a customer is and their purchasing habits
- Time taken for an individual customer to pay – analysis of a customer’s payment habits and the impact the time they take to pay impacts your business cashflow
- Top products by customer – an analysis of the products an individual customer buys the most showing what drives them to your business.
If you’re running a retail store that doesn’t retain customer information at the time of sale, these reports may not provide the level of detail you’re searching for. A common way for businesses of all types to capture customer data is to run a loyalty program, but be aware of the costs before starting such a program. Customers are more likely to provide information to you if there’s something in it for them, so what will you offer and what will be the cost to your business? It’s been estimated that over 200,000 loyalty programs are run in Australia such as two-for-one offers to discounts, vouchers and more.
The value in your top customers
Your most loyal customers can be critical to your business success with many businesses reporting that around 20 percent of their customers make up around 80 percent of their sales. These customers may not only frequent your business and spend the most money but they also tell others about your products and services.
There are a number of useful reports including a summary of sales by customer, which will include all items recorded on invoices or receipts, also a transaction list by customer report will show you all customer-related transactions within a period of time including their invoices and payments. A new customer snapshot was recently introduced into QuickBooks to provide businesses with a graphical analysis of their individual customer’s activity on a single screen, making the assessment of customer behaviour a lot easier for small businesses.
If you’re hoping to improve your base of loyal customers, consider what you are getting right with your repeat customers to date and then look at what tactics will broaden this powerful base. Finding ways to build a personal connection with your customers will be most effective as your business will become more meaningful to your customers and allow you to create a stronger bond. Your business size will determine what’s right for you as there are hundreds of ways to engage with customers and some require greater resources than others. Something as simple as writing a personal email to a customer following up after a sale or replying to an enquiry can be very effective; use your accounting software to make notes about customers that will help you recall their preferences and make them feel noticed whenever you make contact.
Identifying difficult customers
Analysing customers will not only help you find those who are loyal but those customers who can hinder your business. It may be that they are never satisfied and, if you have staff, have a negative impact on your business. There are a lot of courses available regarding how to deal with difficult customers if this is a problem for you and/or your staff. If you’re running a service business you may benefit from not taking these customers at all, or at least providing very clear guidelines with your customer up front.
Not getting paid on time is a concern for many businesses that don’t take payment at the time of sale. Whilst good relationships work with many customers and help build loyalty, not all customers will pay you on time and some can become very difficult about payment. You can use reports within your accounting system to identify those customers who you always have to chase for payment. If you can, don’t take on clients or sell to customers who you know can’t pay you or have a habit of making the process very difficult, or set out very clear payment terms and conditions before doing business with them.
Undoubtedly your accounting system is a very powerful tool, not only for managing daily transactions but analysing your business in many different ways. Most importantly, customer analysis isn’t just an activity for new businesses or those looking to make a change, if your business relies on customers then understanding your customer base is vital for business growth and longevity.