Know Your Customer: Why Every Small Business Should Define Their Customer Personas

Customer personas are not only marketing tools used by ad agencies; they can also help smaller firms better understand their customers, enhance marketing efforts and drive long-term business goals.

These are 4 ways customer personas can help smaller firms

What are customer personas?

Simply put, customer personas are generalizations that group the types of customers who use your business. For example, if you are a baker, three of your customer personas may be: a caterer, a busy mom and a local restaurant owner. Additionally, customer personas can help you think about the kinds of customers you want to attract. You may develop target customer personas based on different criteria like age, income level and interests.

How do you develop customer personas for your business?

There are many ways to develop your customer personas. If your customers are in-person shoppers, feel free to talk to them to understand who they are; why they use your service; how frequently they use it; and what would ever be the reasons why they wouldn’t use it anymore. Also, make sure you figure out if they have any pain points while using your service and what they are.

If you have online customers, social platforms, such as Facebook, may allow you to get more specific demographic data about your customers. You could also use an online or in-person customer survey to gather demographic data about your customers’ existences, wants, and needs.

Additionally, to help you develop customer personas, your local Chamber of Commerce may be able to provide you with basic demographic information about population in your area — including income levels, ages, ethnicities, etc.

How can using customer personas increase customer retention?

Customer personas are one way to understand who your customers are and how to serve them better: Are they busy people who are in a rush when they use your service? Are they stay-at-home moms with small children? Are they wealthy professionals?

Understanding customer personas can help you better market your business and shape the value you give customers. For example, if 95% of your customers are stay-at-home moms in Los Angeles, then it might make sense to advertise on Los Angeles-area parenting blogs. Another example: If you run a book shop, maybe your customers prefer to do book shopping at night. You may decide it doesn’t make sense to close at 5pm. Thus, you can restructure your shop’s hours and open from noon to 8pm instead of from 9am to 5pm.

How to Calculate Customer Lifetime Value

Once you have your customer personas, it can also make it easier for you to calculate customer lifetime value (CLV). This enables you to focus more on the kind of customers who mean the most to your business’s long-term survival.

CLV is the amount of revenue you expect to generate from each customer for the duration of his/her relationship with your company. You may want to calculate the CLV for all the customer segments and/or personas your business serves. If you own a cleaning business that serves both commercial and residential clients, you may determine the CLV for commercial customers is less valuable than the CLV for residential customers. This is an extension of the personas discussed earlier and will likely help you market more efficiently and effectively.

To calculate CLV, multiply the frequency with which customers do business with you (the number of repeat transactions) by the average value of a transaction and the average tenure of a typical customer. Say you own a barber shop and that customers typically visit your store once a month and spend $30. The average customer stays with you for 2 years. The CLV of the average customer is calculated as $30 x 12 months x 2 years = $360.

By evaluating the most common groups of customers your business serves, you can inform business decisions in a way that is both meaningful and efficient. Crafting detailed customer personas and mapping them to CLV can put you in a better position to devise customer-focused strategies and maximize profitability.

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