80/20 Your Customer List So the thing I want to talk about today is that not all customers are created equal. Just like anything else in the world, especially in the world of e-commerce or any online business environment accelerates this times two, I would say times 10, there is a power law aka 80 20. So you will find, of course, like anything else that as well as products, customers obey the same kind of rules, that the top 20 per cent of your customers probably give you 80 per cent of your profit, et cetera. Small businesses fail to create customer lists So, I've just had a bit of lunch at a local greasy spoon in North London here in Kentish Town. It's a place called Troy Cafe, just to give them a shout-out. Delicious chilli con carne on a jacket potato and coffee for under 10 pounds. Very good. Now I bet anything that those guys do not have a customer list. They're a typical small business. They're working hard. They're slightly off the beaten track. So literally just off the high street here, this is the main drag. So in E-commerce equivalent would be that they do not appear on page one for their main search terms. Here's the thing. Customer lists are incredibly powerful and valuable, but that's something everyone knows. First thing, if you're not collecting customer lists, you need to do everything in your power to do that. If you sell on Amazon, obviously they are primarily Amazon's customers and it's hard to do that. There are lots of ways of doing that. I'm not going to reiterate those now. All customers are not created equal - 80/20 customer lists Like anything else in the world, especially in the world of e-commerce or any online business environment accelerates this times two, I would say times 10, there is a power law aka 80 20. Customers follow the same kind of rules, which is to say that the top 20 per cent of your customers give you 80 per cent of your profit, and so on. How to identify your best customers from a list?  Now, how do I identify the top customers in a customer list? Well, obviously how much money they spend with you is important, but there's a really old school, but really powerful formula. Very simple. But if you apply it and they do something with it, it's going to potentially transform your business. The RFM Formula It's R, F, M. R is recency, F is frequency and M is money. So the amount of money somebody spends with you is easier to track. Recency and frequency imply that you're tracking when the transactions happen and you can use various bits of software to figure this stuff out actually, I'm not going to go into the technical details. The general principle is more important because most people don't do anything about this. somebody's bought recently from you, they're much more likely to buy again, of course. Potential value vs likelihood of conversion - Money vs Recency If you want to be more refined about it, I would say the amount of money somebody spent gives you the sort of potential value as a customer, if you can persuade them to buy again. But of course, if they haven't bought from you for two years, the chance of them responding to any kind of outreach in marketing terms, whether you retarget them on Facebook all the way through to just sending them an email, is much lower. So it's less return on your effort or less probability of a conversion. Frequent customers are more valuable long-term Frequency also indicates that they might be a very valuable customer to have if they keep buying because over time the lifetime customer value probably will build. So I would say the frequency at which they buy and the money they've spent is an indication of their potential value. Recency gives conversions But recency is important. I would say rather than saying more recent custom...