We introduced Netcore’s VRM model in this #1:Double Your Profits with Netcore’s Velvet Rope Marketing.
Velvet Rope Marketing understands that not all customers are the same; each brand has a heterogeneous customer base. The familiar 80-20 concept tells us that 80% of your revenue is generated from 20% of your customer base and that 20% are the firm’s Best Customers. We believe that by targeting the Best Customers group that we can double your profits. Best Customers tend to be the group that sign-up the earliest, spend the most, stay the longest, and spread the widest (in terms of recommendations, etc.) but their impact on the company’s revenue is their most important attribute. Our marketing strategy segments the customer base into the brand’s Best Customers to maximize their customers’ long-term value to the firm.
|Before VRM||After VRM|
|Revenue||100||120||Before VRM, the BC give 80% of the revenue and after we expect a 20% hike in revenue|
|GM||40||48||Assuming Gross Margin to be 40%|
|Fixed Costs||20||20||Remains constant|
|Marketing Spend||10||8||VRM optimises marketing spend by 20% by acquiring look-alikes using Best Customer data|
|Profit||10||20||Profits doubled after following VRM!!|
How do we determine the Best Customers?
The first key metric is RFM: Recency, Frequency, and Monetary. Recency indicates when the customer made their last purchase, frequency shows how often they have made purchases within a time period, and monetary is the average price of their purchase. RFM helps segment and identify the company’s best customers based on the nature of their spending habits. RFM helps a firm understand which customers are likely to make purchases in the future, how often they are going to buy, and how much they’re going to spend. The Best Customers will rank highly in all three categories of RFM. Once RFM has been utilized to determine the segments, we calculate the Customer Lifetime Value to form the Best Customer group. Customer Lifetime Value is the sum total of the predicted revenue that an individual customer will bring to the business.
Finding your Best Customers is the first step; once we have determined your company’s Best Customer group, Velvet Rope Marketing will partner with you to find the best actionable steps to engage them appropriately both through Smartech and strategies you can implement internally!
In our next blog, we will delve deeper into the concepts of VRM and how can it help you achieve incredible revenue numbers. Stay tuned!
Rishabh Kishore works with Rajesh's team, and is helping in developing the VRM model. He did Economics and Legal Studies at the University of Wisconsin. When not working, he likes to play frisbee