Define “A Customer”
KPI’s (Key Performance Indicators) are basically numbers. You simply have to know and follow certain numbers because they can be very informative and telling. Key Performance Indicators can act as a dashboard informing you how certain parts of your business is performing.
You are likely familiar with some basic KPI’s (Key Performance Indicators) such as daily sales, and incoming piece reports. These two KPI’s tell you how much money should be in the cash register in Visa, MasterCard and cash, and how many pieces of drycleaning, household and shirt laundry has come in so you can plan the next day’s processing and production. But there are other KPI’s that are just as important that you may not be following.
Every business gains new customers and every business loses customers daily. It’s just the natural ebb and flow of business, as new customers move into a market area, some customers switch drycleaners for whatever reason (price, quality, convenience, location, etc.), some customers move away, some customers lose their jobs, switch jobs and some customers die.
Most drycleaners I know have a point-of-sale system. That point-of-sale system records each and every customer transaction and builds a database of customers. Again, most drycleaners I know will occasionally look into their point-of-sale system’s data and see how many customer records they have. Most drycleaners assume that the number of customers in their customer database reflects an accurate count of customers. So, before we dive into the topic of active customers, we need to define how we determine who a customer is in your point-of-sale data.
Defining the customer record
All too often, counter staff will create a new customer in your point-of-sale data whenever the phone number the customer gives them is not found in the POS system. These days, it’s not uncommon for a customer to have a home phone number, a work phone number and a cell phone number. And again, the spouse may also have a work phone number, a cell phone number, but share the home phone number, if they even have a land line at the home. With each household having the possibility of five different phone numbers upon which a customer record can be created or based upon, which phone number becomes the dominant record that you use to identify a single household as a customer, or do you care? Personally, I prefer to use the home phone number to identify a single household and associate everyone who lives in that home into one customer record, including husband, wife, kids, significant others, etc. But that’s me. Others simply use whatever phone number they are given to associate with the customer profile, so if the wife uses her cell phone, and the husband uses his office phone number, those count as two individual customers. Either method is fine, but it’s useful to know how you define a customer and customer record because when comparing numbers with others, you need to know if your customer base of 5,000 customers is one record per household, meaning your customer database represents 5,000 individual households. If it’s one phone number (work, home, cell phone) represents one customer, 5,000 records could represent 5,000 individuals or 2,500 households (assuming two people live in same house). Right off the bat, you can see definitions are important.
What defines an active customer? Well, many drycleaners again assume that every customer in their database is an active customer. Not always so. If you are assuming that every customer in your database is an active customer, you may be deluding yourself. Just because your point-of-sale system has a customer record, it does not mean that they are in fact active.
20 percent of customers move every year
Remember, customers are always coming and going. People are on the move. 20 percent of the population moves every year, so that means that 20 percent of your customer database has moved away. In a typical drycleaners database of 5,000 customer records, a full 20 percent, or 1,000 customers, have moved, and you have data representing people who no longer live in your market.
2 percent of customers die
Death happens to all of us, and your customers are not any different, 2 percent of your customer database have either died, or are going to. Again, a typical drycleaners database of 5,000 customers, at least 100 people are going to die of whatever cause.
Customer spending varies
Not every customer is created equal. Some customers come in weekly with big orders. Some customers come in every other year with one piece. And then there is everything in between. Again, your point-of-sale systems records them all, and it’s likely growing and growing in size as you add more and more customers.
Clean your customer records
If you are not deleting customers who move away, or die, your computer systems will show your customer count growing and growing every month as you continue to add more and more customers. You must CLEAN your customer list at least annually to remove dead customers and customers who have moved away.
How to clean your customer list
Personally, I prefer to mail a postcard to every customer at least once a year. Mail cannot be blocked by a spam filter, it usually is not ignored like a text message can be, but most importantly, if a customer has died or moved away, a postcard that is mailed is returned back to you as undeliverable. All mail returned as undeliverable gives me and my staff the opportunity to delete that customer from the database with confidence that they have in fact left the market area and can be safely deleted.
The postcards that are delivered, well, they should include an offer that a customer can respond to (which may trigger an order, driving up sales and pieces). Turn the customer list cleaning into a revenue opportunity to get the most bang for your buck.
This now leaves us with another conundrum; what about all the customers we have that have not died, not moved, and have not had an order with us for some time? What exactly is an active customer? In my opinion, and active customer is someone who has placed at least one order in a calendar year. It can be one pair of pants, one shirt, just one single order and that makes them an active customer. Everyone else is an inactive customer.
Those customers who quit us to go to a competitor, when exactly do you delete them from your point-of-sale system? Do you keep them in your point-of-sale system and hope they return? Or do you delete them from your system using my definition of active customer, they become a quit or lost customer after one year of inactivity, and I no longer count them as a customer (but what to do with customers who quit is another entirely different article).
Now that we have defined what a customer record is, and what a customer is, and we are cleaning out dead customers and customers who have moved away, you should be able to determine how many customers you do have. This is your Customer Count KPI. You should set up a spread sheet and record your customer count monthly to see if it is increasing or decreasing. The customer count KPI (Key Performance Indicators) is vital to see if your business and customer base is growing, flat lining or shrinking.
Once you know your customer count, you should be able to run a report to determine how many new customers you get each month. This is your new customer KPI. The new customer KPI shows you if you are gaining new customers, by whatever method.
You should start recording how many active customers you have in your database monthly. Set up a spread sheet to record the number of active customers you have in your database each month. You will see season dips in tour active customer count, and you will see seasonal increases too for Spring and Fall as your point-of-sale picks up seasonal customers reactivating with orders being included in active customer counts. This is your active customer KPI.
Since you know how many customers you have, and how many are active from month to month, you should also be able to calculate your inactive customer KPI (Key Performance Indicators). As was mentioned, this number will fluctuate seasonally, but it is handy to spot trends. If you notice that your active customer count is NOT increasing in spring and fall, that is a big red flag that something is seriously wrong.
You could, if you were deleting customers who died and moved away, and further refined your customer list by analyzing/recording the ratio of active to going inactive customers (changes in spending patterns), you could even follow a lost customer KPI.
Customer Count KPI, active customer KPI, inactive customer KPI, new customer KPI,
lost customer KPI
So, these five KPI’s (Key Performance Indicators) form a simple but effective dashboard where you can see over all how your business is performing with respect to customers, customer loss or growth, and active customer growth, which should also tell you if your business is growing or not. Keeping on top of these numbers is not a lot of work, and can be done once a month, and give you a solid indication of the overall health of your business And, there is more to come yet about numbers and KPI’s. Stay tuned.
Darcy Moen opened his first drycleaning shop at the age nineteen. Over the next sixteen years, he built his first 600 square foot plant into a chain of 5 stores, creating and testing his own marketing programs along the way. Darcy is a multi-media marketer, working in digital signage, video, print, direct mail, web, e-mail and is a social media expert certified by Facebook for Pages, Insights and Ad Systems. Please visit www.drycleanersuniversity.com.