Fish Where the Fish Are
Effective customer segmentation streamlines sales activity and drives performance
If you've got a great product, you'll already have more potential customers than you can possibly reach out to. That presents a potential problem.
Casting about randomly means that we may waste valuable time trying to reach customers who don't offer the best revenue opportunity.
So we need to think carefully about what customers will provide the greatest return on our investment and reach out to them first.
In brief, we need to fish where the fish are!
So at this stage we need to think about which customers you are going to target, and in what order.
In simple terms this is customer segmentation. It is a way of creating a prioritised list for our sales activity. It boils down to creating core customer categories.
Take Advantage of Segmentation
In larger organisations, correctly identifying and categorising our customers is a key responsibility of senior sales management in association with the research facility provided by the internal marketing department. If you’re an entrepreneur or a one man band, you’re going to need to do this yourself.
Before potential clients are distributed to the target sales categories, the markets are segmented and analysed for their intention, commitment and capacity to invest on our products and services.
Typically, the total number of clients and their total potential spend are all estimated to create individual customer portfolios that are balanced in their potential to generate revenue for your company.
We invest time in this process because it saves time later!
If we don’t do it, we are likely to default to doing what is easiest to do, not what is likely to be most successful. With 7 billion potential customers in the world, the chances of getting this wrong are very high, and the cost of doing it wrong can be wasted effort and a failing business.
Simple Customer Scoring
A simple way of doing this may be to score each potential client against how much they spend in your industry vs how much they spend in your sector - such as with your competitors.
For example, a seller of x-ray equipment may include all hospitals in the ‘industry’ range but only those hospitals that have an x-ray department in the ‘sector’ range.
Or a BMW dealer may categorise all car buyers in the ‘industry’ range but only those people who buy mid-range luxury cars in the ‘sector’ range.
Clearly all customers who operate in your target industry may be potential customers of yours, but those who spend both highly in both your industry and your sector are far more attractive prospects. We need to focus on them first.
Tailor to Meet Your Industry
As many of our customers are companies selling digital marketing solutions to major brands and advertising agencies, let’s take that industry as an example.
Typical customer segments include: International advertising agency groups, international and large regional brands segmented by business category (e.g. travel or finance), local specialist agencies and local brands and customers segmented by postal district
Any sales person may have companies from some or all of those segments in their target customers. Their task is to prioritise and manage relationships to gain maximum revenue.
In simple terms they can prioritise the portfolio by listing the clients, and mapping them to a matrix.
Map Your Customers
Let’s look at how this works for companies selling digital marketing services, with companies located by their spend on marketing services in general on the industry axis, and their spend on digital marketing services in particular on the sector axis.
Each client is mapped onto this graph according to their current expenditure, and it gives us four very clear quadrants, A,B,C and D to work against.
In this example...
Category A are priorities. They already spend a lot on marketing in general and a lot on digital services in particular.
Clients 1 and 4 fall into this category, with Client 1 spending the most - our first customer call!
These are important clients, they represent the biggest opportunity to earn revenue. They require close client servicing, attention to their immediate needs and concerns, and regular face to face contact to sustain the relationship.
With high general marketing spend they also have plenty of margin for growth.
They probably represent 20% of the total clients, but 70% of the revenue.
Category B are attractive. Although not big spenders in marketing generally, they commit a large proportion of their spend to digital channels.
These clients offer great ‘low-hanging fruit’. However, whilst high spenders represent a good opportunity for revenue today, there may be restrictions on growth from the lack of opportunity to draw expenditure from other marketing budgets.
They probably represent 10% of the total clients, but 20% of the revenue
Category C needs some attention, with lots of investment in marketing, but limited digital spends.
These clients are a big growth opportunity, however they can be a big drain on sales resource as they may require a large investment of time and energy just to persuade them to use digital media, let alone buy the company’s products. The sales team need to invest limited time in this group to maximise return on investment.
They probably represent 10% of the total clients, and only 5% of the revenue
Category D are ‘holding clients’, with limited current spend.
These clients are worth keeping an intermittent eye on, as at some point they may grow and increase their spending, moving into one of the more lucrative client categories.
They probably represent 60% of the clients, and only 5% of the revenue.
So we can see that we’ve created a prioritisation list of key clients to focus on as part of our sales effort, and a very clear idea of where our first calls should be made.
Have a look at your own customer list based on the same approach, but with axes that reflect your own target industries and sectors.
When you've allocated the customers to a category, list them in order of importance.
Don’t worry about getting this wrong at the start. It’s only for your use, and you can soon move clients to a different category when more information becomes available.
Holding this list close to our heart, we can discuss how we can first reach out to them, break the ice and start to get business rolling to drive all those sales numbers up!