Identify your most valuable customers

Identify your most valuable customers

This is a very simple tool that can help you to visualise your customer base and, consequently, work out which of those customers is the most valuable to you.  It’s a CRM (Customer Relationship Management) tool, and hopefully a useful one.

The model I like to use is about 15 years old and is called Curry’s Pyramid (make sure you get the apostrophe-s, or it’s a different thing altogether!)

The idea is that you segment your customer base by revenue generating ability, which is broadly how important they are to you in any case.  Note that this is revenue generation, so not turnover!  It’s about how much margin you make from your sales to them.

It’s a variation on the 80/20 Pareto rule, really – you know that 20% of your customer base provides 80% of your revenue, but if you market to all customers equally, then 80% of your marketing efforts are going to customers who contribute only 20% of your revenue.  This model helps you to visualise that:

currys pyramid

(This image is unattributable, from what I can find – it appears in various places online, so if it’s yours please let me know and I will credit/link accordingly!)

Then you treat the customers within each segment a little differently.  At least, you have the option to do that as they have been segmented – you may not wish to, but it makes sense, for example, to focus the bulk of your marketing spend where it will have an effect.

Anything that you are doing consistently across your whole business will potentially be skewed towards waste – the vast majority of customers in your database are likely to generate either zero, or a minuscule amount of revenue for you, yet they may well receive the monthly newsletter, your catalogues, mailshots and Christmas cards!

You can use a similar principle to analyse things like customer complaints – again, 80% of complaints will come from 20% of customers.  Model that in the same way, and it helps you to visualise the problem.  If you have any sort of business issue of this kind, this model is very helpful because it reduces it to a small number of people that you have to deal with, instead of being faced with the entire customer base!

6 Comments
  1. In eBook publishing, terms can have a different significance.

    I’ve yet to find a marketing tool that has a statistically significant impact on the number of books I sell on Amazon.

    If I chose to do paid advertising, I would focus on the best selling book and forget the others.

    As I once heard Warren Buffett say, “You can’t turn a turd into chocolate.”

    1. Yes – this type of model doesn’t work in that sort of environment, as it relies on a customer base of repeat orders, really – if you have a medium to long term relationship with businesses you can do this sort of analysis.

      I think publishing, and even more so with e-publishing, is a highly speculative exercise. I worked in publishing and retail for a long time, and there is a lot of risk in bringing things to market. There is only so much research that you can do ahead of time, and sometimes things just fell flat on their face and that was it!

      As you say, if you have a decent seller, sell more, and don’t spend time and money pushing the rest. You will probably find that having one really good seller will have a bit of a ‘first-album’ knock on effect. You know the sort of thing – an artist has a huge success with a second or third album, and suddenly everyone is rushing out to buy the first album that they totally ignored at the time it was released!

      1. David,

        I built a personal sales business by making over 100,000 cold calls. I kept excellent records of every call. The mathematics of sales works for all types of sales once a person figures out the players.

        In the first sense, an eBook is like making a cold call with the eBook as the potential customer. You have to make the cold calls to get the customer, and you have to write the books to get the buyers.

        The easiest way to increase sales of a writer’s eBooks is to write more books. It dwarfs all other marketing.

        Once the book is published, 1 in 3 will sell more then the other two combined. 1 in 10 will sell more than the other 9 combined. 1 in 100 will sell more than the other 99 combined.

        The easiest way to make a living selling eBooks is to write 100 books.

        If you are interested in the mathematics of eBook selling, I wrote a book on it called “eBook Success Formula.” http://amzn.com/B00BXP7XSI

        If want to know EVERY aspect of sales at all levels, then read the book I wrote after reading my grandfather’s notes. I published under my grandfather’s name — Tom Colby.

        Sales Team One: http://amzn.com/B00E3XWR3S

        Writing eBooks is not at all speculative. It follows the principles of sales like all sales do. If a person makes the contacts, they make the sales.

        After five years of continuous effort, they will be successful. It’s virtually a certainty. All they need is a boss that forces them to write. There is no reason a person can’t publish at least 100 books in 5 years. I’m about 48 into it after less than 2 years.

        Thanks for letting me ramble,
        Gershon

        1. Fascinating. Thanks for rambling and I will check out those links!

  2. Great article David I work with clients who think all customers are there most valued and do not differentiate their limited resources accordingly. It always surprises them how few customers bring so much value. Great model

  3. Hi David – Great post. It amazes me how many people I speak to who are devising elaborate products for customers who currently spend little or no money with them. I work with passionate heart centred entrepreneurs who feel that they have to be all things to all customers. The idea of giving an excellent but appropriate service is often lost on them. Great illustrations I shall use this model in future too.

Leave a reply

Your e-mail address will not be published. Required fields are marked *