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:
(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!