GuidesCustomer researchCustomer base: Definition, make-up, strategies for growth

Customer base: Definition, make-up, strategies for growth

Last updated

22 February 2024

Author

Dovetail Editorial Team

Reviewed by

Hugh Good

Retaining the right customers is crucial for success and can increase profits exponentially. According to a report from Frederick Reichheld of Bain & Company, increasing customer retention rates by 5% produces more than a 25% increase in profit.

Improving customer retention rates means building and growing a customer base.

What is a customer base?

A customer base is a group of people you can depend on to purchase your company's products or services. They usually have similar demographics, interests, or problems they need to solve that make your product or service valuable to them.

Different types of customers can make up your customer base. Let’s look at the main customer types.

Potential customers

The fact that potential customers need your offerings and have possibly been purchasing them elsewhere means they have something in common with your current customers. These ideal customers could become your customers instead of buying from your competitors, so include them in your customer base.

New customers

These are customers who have recently purchased from you or interacted with you for the first time. When they complete a purchase, revealing their need for your product, they become part of your customer base.

Loyal and repeat customers

These types of customers are worth the most to your company. They regularly purchase your products, and they connect with your brand. They might not purchase everything you offer, but if you introduce them to new or higher-value products, chances are they will buy.

They also provide significant value because this is the group you rely on to help market your company through word-of-mouth recommendations, written reviews, and discussions on platforms like social media.

As long as you continue to satisfy members of this group, they won't look for alternative products or services and will continue to act as positive brand ambassadors to share their experiences with others.

Low lifetime-value customers

Customer lifetime value (CLV) is an estimate of the average revenue a customer may generate throughout their lifespan as a customer. A low lifetime-value customer purchases a product from you every once in a while or, if your business is subscription-based, subscribes to the lowest-value plan you have available.

While labeled ‘low,’ they still contribute to the company's revenue source and, at scale, can make a considerable contribution to your bottom line. You should consider them valuable members of your customer base.

Former customers

It's not the end of the world if customers no longer purchase from you. They may have reached the demographic limits of your product or service, or their situation may have changed.

For example, if you sell toys targeted at children aged 3–10, this presents a demographic limit. Once the children are older than 10 years of age, their parents won't purchase toys aimed at this demographic any longer. They become former customers but might return as customers when, for example, their grandchildren arrive.

However, if multiple customers leave, reevaluate your customer engagement metrics or the success rate of your customer service efforts. Something may have changed to negatively impact the customer experience of your once-loyal customer base.

What is a butterfly customer?

You can't count on the loyalty of this particular customer because they go from offering to offering, looking for the best deals, or use a range of products to meet their preferences. These customers will not purchase from you because they connect with your brand but because you have something that meets most of their needs.

Even if they've found one product from your company that they prefer and will continue to buy, they'll purchase related products elsewhere that may not deliver the same experience, especially if there are benefits around pricing or availability.

Customer base vs. installed base

A customer base is composed of people who are most likely to buy your products or services. They don't have to be actively purchasing the ones you offer, but their demographics or interests indicate that they could be persuaded into purchasing more.

An installed base consists of customers actively and regularly purchasing from your company and engaging with your brand.

B2C customer base vs. B2B customer base

Knowing your customer base means knowing who you sell products to. The acronym B2C stands for business-to-consumer, while B2B stands for business-to-business. Does your business sell to consumers or other businesses? Sometimes, a company sells to both.

Different customer bases require different strategies for growth. There are various paths to take when considering sales, marketing, and customer service strategies with each of these customer bases.

The B2C customer base approach

The B2C business targets individual consumers. These buyers are usually purchasing something for themselves. They'll consider if they need specific products or services, evaluate their options by shopping around, and decide to purchase.

This is a chance to make an emotional connection. Your brand can create a story that appeals to your consumer customer base. The marketing strategy can take a range of forms. You could take a fun, entertaining, or educational approach to drive effectiveness.

Now you've attracted the consumer's attention, keep them engaged in your brand. Influencer marketing, social media communities, viral videos, and interactive games can keep your customer base engaged.

For customer service strategies, make sure the consumer doesn't have to wait long for an answer or to resolve an issue. Consumers appreciate customer service tools that allow them to help themselves, such as connecting immediately to a live agent or well-designed FAQs or troubleshooting guides.

B2B customer base expectations

This customer base has different expectations when considering a purchase. There is usually more than one person involved in the purchasing decision. They will focus on:

  • Price

  • Efficiency

  • Productivity

  • Return on investment (ROI)

Instead of making an emotional connection, work on building trust and authority and setting prices that compete with your competitors.

Cultivating relationships through phone calls, conferences, networking, and trade shows can engage B2B customers. However, recently there has been a transition to social media.

B2B businesses usually have customer service teams dedicated to helping clients with issues. B2B customers appreciate quick responses and resolutions, so your B2B business should promote close relationships and consistency with these customers for efficient and satisfying customer service results.

How to build a customer base

The first thing to do when offering your product or service is to start building a customer base for it. Maybe you're just beginning to sell products, or you've been selling other products but are introducing a new one.

Here are some tips when building your customer base.

Identify your target audience

The target audience is the consumers who will most likely buy what you offer. Identify who they are to maximize the potential of your marketing and advertising campaigns.

One way you can identify this audience is through market research. This can help you gather a lot of useful information, including:

  • Numerical data

  • Facts

  • Statistics

  • Consumers’ thoughts and feelings about your brand

  • Consumer feedback about their experiences and expectations regarding your brand

  • Consumer preferences

  • Consumer purchase motivators

  • Attitudes and beliefs

Existing reliable government and educational sources available to the public may provide numbers, facts, and statistics to help determine your target audience.

You might also gather consumer data by interviewing or surveying potential customers. You can find them at trade shows, conventions, or events related to your product or service.

Analyze your current customer base

Get an overview of your present customer base by consulting your social media and website analytics. These resources will help identify demographics and other relevant information.

For example, you might find where your customers live, their age, gender, general interests, and other helpful information. You can also review your customer relationship management (CRM) software to analyze existing customers' past transactions, orders, or communications.

Research competitors’ customers

This type of research will tell you about the customers purchasing from your competitors and why they are buying from them. You can visit your competitors’ websites and social media platforms to look for customer reviews and better understand their demographics, interests, purchasing patterns, and behaviors.

You might find, for example, that there are customers you didn't think to target or that you are targeting vastly different demographics from your competitors.

Profile your ideal customer

Creating a buyer persona of your ideal customer is another way of building your customer base. This process involves creating a semi-fictional profile of your target customer.

If you have multiple customer segments, each containing customers based on common characteristics, create ideal customer personas for specific products or services. Include the demographics of consumers interested in your products.

For example, if you sell toys for boys and girls aged 3–10, your ideal customers will be parents or grandparents of children within that age group. The perfect customer's age for purchasing your product could be 18–70, and wouldn’t be limited to a specific gender, although if it’s parents or grandparents, a target above 30 years of age would seem appropriate.

The desired sales location of your product will depend on whether you sell these toys in a brick-and-mortar store or online. You can also add income parameters since the price seems to be what matters most when buying children’s toys.

Next, you'll list why the customer needs your product:

  • The purchaser prefers toys that educate their child

  • The purchaser prefers toys that entertain their child

  • The purchaser prefers toys that will enhance their child's cognitive skills, for example, attention, memory, and visual processing

List how the customer will benefit from the toys you sell. For example, note that not only are your toys educational and entertaining, but they're not easily broken and will endure an active child's typical usage.

Next, add the potential pain points a consumer might have when buying toys for their children, which you will hopefully solve with your products. Pain points can include:

  • Children quickly lose interest in toys

  • Toys are easily broken and need to be replaced

  • Toys can be made with toxic materials or dangerous components

  • Toys can be expensive

Acknowledging the pain points of buying toys will help inform and improve the types of toys you create and sell, and help grow your customer base. 

Why is it important to grow your customer base?

A customer base is a dependable economic resource, providing consistent income for a company. The larger your customer base, the more stable the financial situation of your business. If your customer base is too small, even one customer leaving may significantly impact the stability of your income and your ability to generate profits.

A growing customer base can also help with marketing efforts. Customers who continue to purchase from you rather than your competitors often share their preferences with others about their positive experiences with your brand and make recommendations based on those experiences. Growing your customer base is investing in building more relationships and can ensure word-of-mouth marketing is effective.

Growth of your customer base can promote better products and services, as well as growth opportunities. The bigger your customer base, the more valuable insights and feedback you’ll receive on any issues to improve your offerings and address your weaknesses. Without opinions and responses from your customer base, you won't know what to improve or correct.

How to grow your customer base

Whether you're a B2C, a B2B company, or both, providing excellent customer service should be at the top of your list when growing your customer base. Although customer service can mean different things for these groups, knowing the difference will help increase your customer base in either realm.

Encouraging loyal customers who repeatedly purchase to leave reviews will help grow your customer base. According to Harvard Business Review, 98% of customers read reviews before they shop, and they are the most important sources of information about products and services. 

If customers leave feedback by other means, either through customer service or social media channels, be sure to publicize it (assuming it’s positive!). Another way to put your existing customers to work growing your customer base is to set in place a referral program. Those who actively share with others will be rewarded when someone they share their experiences with makes a purchase.

Giving something away for free in exchange for information or offering free trials and introductory discounts are other ways to grow your customer base. These options help generate awareness and curiosity about your company. If potential customers follow through on your offers, keep them engaged by personalizing customer interactions so they continue to do business with you even when the introductory or free-trial offers are over. Welcome and include them with emails, newsletters, and social media communities.

How do you measure the customer base?

You can measure the customer base of a subscription-based or non-subscription-based business, but you might go about it using different methods. The subscription-based company can use monthly recurring revenue (MRR) metrics to see how much each customer is spending on an ongoing basis.

This metric indicates how much your customers spend on your products or services each month. You would calculate this measurement by taking your average revenue per user (ARPU) every month and multiplying it by the total number of subscribers in a given month. Increasing, stagnant, or decreasing measurements is proportional to the health of your customer base.

If your business is not subscription-based, measure your churn rate. This indicates the rate at which customers stop doing business with you. You can calculate your churn rate by taking the total number of customers who have not made a purchase in a certain amount of time and dividing it by the number of customers who have. The larger the number or percentage, the less healthy your customer base is.

Customer base example

Every industry has a profile that best fits the customers who will buy the products or services their industry offers. For example, a general retail store customer base is any gender aged 18 to 54 years old. However, you can narrow the profile depending on what products your retail store sells. If the retail store is a high-end grocery store, for example, the profile can be narrowed to related characteristics like food connoisseurs, cooking enthusiasts, or health-conscious eaters.

Increase revenue stability by growing your customer base

All businesses rely on a stable revenue source to continue operating effectively. Identifying your customer base through fact-finding operations must be high on your priority list.

Once you determine your customer base, work on growing it by applying marketing tools and customer service strategies. Learning how to increase your customer base will allow you to replace customers who aren't purchasing much and achieve a sustainable revenue stream for the future.

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