Let’s be real: not all customers are created equal. Some are going to be worth a lot more to your brand than others. These folks, your high-value customers, are the backbone of any successful business, which is why it's critical to identify them and cultivate happy, long-term relationships.
In this article, we'll walk through how to evaluate your customer base and connect with your high-value customers via targeted campaigns to drive business growth.
What Is a High-Value Customer?
High-value customers (HVCs) are those customers who are worth the most to your brand. Typically, definitions of high-value customers focus solely on a customer's monetary contributions to a brand's bottom line. While that’s not wrong, it doesn’t capture the complete picture and isn’t actionable for brands.
Let’s say a brand rank orders customers with high customer lifetime value and targets them with an email or SMS campaign. Customers with high LTV might not have purchased for a year, or three years, or (for older brands), even a decade or more. By only looking at dollars spent and ignoring other factors like recency of the last purchase, the brand gets a skewed view of who its “best” customers are, resulting in inaccurate targeting.
A more accurate definition of a high-value customer is someone who is highly engaged, buys more often than others, and spends more than others. They might be long-term customers, but this isn’t necessarily the case.
Why Are High-Value Customers Important?
Consider this: 65% of a company's revenue comes from repeat customers. Moreover, the top 10% are spending three times more than your average customer. So, investing in your high-value customers can have a huge impact on your bottom line.
But that’s not all.
Loyal, repeat customers help to reduce your marketing and acquisition costs. By keeping them happy, you're more likely to see a higher return on investment than from other customer segments.
After all, why worry about Alice Jones, who made one purchase for $40 and cost you $100 to acquire, when you could focus on Johannes Bobinson IV, who's made 30 purchases and also cost you $100 to acquire?
Prioritizing the needs of your top customers and keeping them happy creates a ripple effect that extends far beyond the immediate sale. They provide invaluable feedback, word-of-mouth marketing, and insights into your company's strengths and weaknesses.
By building strong relationships with them, you're not just building a loyal customer base; you're building a community of advocates who will sing your praises and help to grow your brand organically.
Using RFM Analysis to Identify and Target High-Value Customers
RFM analysis uses three core pillars of customer behavior to quantify the value they bring to your brand:
- Recency: how many days has it been since their last purchase?
- Frequency: how often has that customer purchased?
- Monetary: how much have they spent with you?
The traditional way to do RFM is to rank your customers based on the three dimensions and bucket the lists into five groups, where group one is the most valuable and group five is the least valuable.
For example, with Recency, you would rank customers based on their last purchase date from most to least recent. Then, you would divide the ranking into 5 groups. Group 1 would include the top 20% most recent purchasers, group 2 would include the top 21%-40% of purchasers, and so on. You would then do the same for Frequency and Monetary over the same timeframe.
This should give you an analysis that looks like this (although one with more than three customers!):
As you can see, customer A is the most valuable, customer C is the second-most valuable, and customer B is the third-most valuable. Customer A has purchased the most recently, has bought the most frequently, and is in the top tier for amount spent.
However, with this approach, you end up with 125 segments (5 x 5 x 5), which can be, at best, incredibly annoying to manage.
To make RFM easier to track and interpret, we recommend taking a different approach to RFM scoring, where we take an equation (pictured below) and calculate a single number for each customer and break it into deciles (i.e., ten groups).
These deciles will show you your most to least valuable customers.
The 10 groups correspond to scores of 1-10, where 1 is the best score attributed to the top 10% of customers. A score of 2 corresponds to 11-20%, a score of 3 corresponds to 21-30%, and so on. The result is a clean and easy-to-interpret “Top 10” ranking system that will provide you a fairly stark look at customer performance:
Customers with RFM Scores of 1 and 2 (the top 20%) are a brand’s highest-value customers, and they have the most significant impact on profitability. The top 10%, however, tend to be dramatically more valuable than other groups. Consider the data above, showing a brand’s RFM Score 1 customers to be 30x more valuable than RFM Score 10 customers.
RFM can even show you that some customers contribute negative LTV (see RFM Score 10 customers above), and, importantly: Some brands, in fact, may be losing money on customers even with higher RFM Scores (e.g., around 5 or 6) depending on their CAC.
An RFM Analysis (i.e., Recency, Frequency, Monetary Analysis) is the most comprehensive methodology to ID your high-value customers. Via RFM, you can rank order customers, from your most valuable customers to least valuable customers (including those contributing negative value to your brand!).
What to Do with Your High-Value Customers
How can you foster deeper relationships with your top customers and make them feel like the VIPs they are?
Here are some tactics you can use to maximize customer lifetime value while building loyalty.
Collect Zero-Party Data from Them
Via surveys and polls, ask your high-value customers for their preferences and more about their relationship with your brand.
Do they have a favorite flavor of your product? Do they buy gifts from your brand? Do they have a favorite dress style?
You may be frustrated with a lack of engagement from your customer base in general, but you can expect much higher engagement rates from your HVCs.
Ask for Their Input
Regularly ask your high-value customers for their feedback on your products, services, and overall customer experience. This will not only make them feel appreciated but also provide valuable insights to improve your offerings and better meet their needs. Consider using various channels such as email, social media, or direct phone calls to communicate effectively with customers and gather feedback.
As with polls/surveys to collect zero-party data, you will likely have stronger engagement when you’re looking for genuine (and quite honest) feedback about their experiences. In fact, it will likely deepen the relationship: customers appreciate when they can share their opinions, and if they see that you’re asking about whether they’re happy or if they have feedback on something, they’ll see that you do care!
In some instances, you might even be able to run test groups or get truly direct feedback from customers. For instance, Maev, a raw dog food brand, has had phone calls with loyal customers about their experiences with products to hear the good, the bad, and the ugly.
Offer Special Deals and Discounts
Provide exclusive discounts, early access to new products or sales, more loyalty points, and additional bonuses, like free gifts with purchase to your HVCs. Making them feel special (and ensuring that they stay feeling special) should be a fundamental priority to your brand.
They’ve rewarded you with loyalty and, let’s be frank here, a lot of money, and they deserve exclusivity that comes with their substantial investment in your brand.
Extra Granular Segmentation
To take segmentation to a next-next level, consider going deeper than your top 10% or 20% of customers and segment your customer base even further. We’re talking your top 5%, 3%, 1%, and even beyond that.
The smaller the customer group, the greater their relative impact is on your business. The impact from RFM Score 1 customers compared to RFM Score 2-3 customers is disproportionate, and the impact from further segmentation will show you the true whales, even in an area of water where there are a lot of big fish.
These are the folks that deserve even greater benefits…
Which brings us to:
Hosting exclusive events, both in-person and virtual, can be an amazing way to make your highest-value customers feel not just special, but like a part of your brand’s family.
If you’ve done further analysis of your HVCs, hosting the occasional event for your whales & superfans (i.e., your top-top customers) is an incredible show of appreciation for the best of your best: it enables them to have truly unique experiences and opportunities to engage with your team.
Preventing High-Value Customers from Churning
Because you’ve invested so much money and resources into acquiring your HVCs, preventing them from churning should be your second-biggest priority after retaining active ones. It, to be technical, really freaking sucks to see great customers leave.
Here are some tactics to help keep them:
Run Win-Back Campaigns
Build tailored flows with special promotions or discounts to entice your HVCs to return.
You can get fairly granular here by building campaigns based on not only their purchase behavior but the zero-party data they’ve provided. By sending them big discounts on products they are more likely to love, they’re therefore going to be more likely to reconvert and become adjective customers again.
Remind Them of Their Benefits
There are loads of benefits to shopping with your brand, so make sure your customers remember that!
Regularly communicate with them about the loyalty points they have collected and the benefits they are entitled to, highlighting why they should remain engaged with your brand.
Resolve Issues Quickly
If a high-value customer has an issue, make sure it is resolved quickly and efficiently. That should be true for any customer, but with HVCs, it is even more essential to nail the customer experience.
Even if your brand makes a mistake, making an effort to put it right quickly can help build trust and loyalty. While you shouldn’t give refunds or heavy discounts away lightly, the time to dole those out is when your HVCs are involved.
Target (and Retain) High-Value Customers With Daasity
Daasity enables brands to centralize and analyze all data: that means eCommerce, Amazon, retail, and/or wholesale. And when it comes to your HVCs, we have a ton of functionality built out around retaining them in particular.
You can push RFM segments into your ESP or SMS channels, enabling you to create highly personalized and targeted marketing campaigns on each platform. Say goodbye to “marketing to everybody” and hello to laser-precise marketing that speaks directly to your high-value customers.
Interested in learning more? Reach out today to see Daasity in action.