Acquiring customers should be the number one goal of every startup. But how much time is spent trying to understand which customers are the right ones to target? I am sure you have spent the time and resources researching and identifying your product’s target market. You are confident that you have a product-market fit. But are you targeting the right customers within this segment?
What your customer base looks like.
Once you have started to establish your customer base you will start to see trends emerge as to who your customers are and the amount of value you can derive from them. If mapped on a graph using the lifetime value of the customer more often than not your customer base will fit under a bell curve, peaking at your average revenue per user. Breaking this down into quartiles you get the following customer groupings.
1st quartile: These are the users that spend the least with you. They trial your product but they either don’t repurchase or purchase the bare minimum.
2nd quartile: These users stick with your product either for a longer if it is a subscription or buy slightly higher than the base level.
3rd quartile: These users spend more than the average, are longer-term adopters and strongly consider new products or services when they become available.
4th quartile: These users are enthusiastic consumers of your product. They buy everything you offer and are likely advocates for your brand.
Who should you be targeting?
There is a rule that applies to so many aspects of life. It is the 80-20 rule. That is that 80% of the outcome comes from 20% of the effort. In sales, this means that 80% of your revenue comes from 20% of your customers. So why is it then that so much of sales strategy is based on targeting the average customer? While the average customer cohort is generally the largest in number eventually it runs out.
If you find yourself therefore with increasing customer acquisition costs it is time to retarget your sales strategy. By targeting the top 20% of buyers and people who are likely to fall in this category you can increase your average revenue per user (ARPU) and lower your acquisition costs.
TAKEAWAY: If your sales efforts that focus on the centre of your target market are delivering diminishing returns then it may be time to shift towards customers who are likely to enthusiastically adopt your brand or resell to those who already do.