Key Customers
Everything should be through your customer's eyes.
After all, they are the main reason for your business. If you aren't thinking about them, and the following metrics, you are missing an opportunity to be of real value to them. Additionally, the more you know about your customer, the more you'll be able to find them to market to them - you know, to make sure they know about you!
The topics in parentheses are to help you understand where you’ll need these answers as you start to build your business and start operating.
what motivates them (marketing, mission & brand)
why they value the solution you provide (marketing)
how often they need it (operations, marketing)
when they need it (operations)
how they make decisions around what they need (marketing)
how much they will pay for it (pricing)
what words they search for when they go to buy it (marketing, this becomes SEO)
where they search to buy it (marketing)
where they buy it (channels)
Define Key Customers
Use this Key Customers worksheet to assist you as you figure out how to define your key customers.
Marketing terms you may come across when talking about customers in the business world are key customer, customer segments, target market, persona and archetype.
You never want to say everyone is your customer. Yes, anyone and everyone can buy your product, but the reality is that you don't have enough resources to reach everyone in the world, plus the reality is that what you offer isn't what everyone wants or needs. Therefore you must ask yourself this: who is most likely to be your key customer? You want to focus on them.
There are 4 main characteristics you can use to define your key customers, but only use what makes most sense to you and is specific to your business.
Demographic - measurable characteristics that matter to your specific business such as:
Age range
Ethnicity
Gender
Life stage: primary school / secondary / higher education / starting career / have young children / have teenagers / children out of the house / new career / retirement
Marital status: single / divorced / widowed / married / partnership / committed relationship
Income: Less than $35,000 | $35,001- $51,999 | $52,000-$73,999 | $74,000+
Education: GED / High School / Bachelors / Masters / Doctorate / Professional Certification
Home: rent / own
Geographic -
where they live or will purchase your product: country, cities, urban or rural
specific cities - for instance if you are a retail store in downtown Lowell, most likely most of your customers are from a 10 mile radius of Lowell - do you need to think about how long it takes them to get to you?
online vs. brick and mortar vs. wholesale
B2B - business to business
Psychographic –
things that define the psyche of your customer such occupation, consumer attitudes, value, interests, lifestyles, political affiliations, or specific occupations (for example if you sell uniforms, your customers might be nurses)
*this is really where so much of how you can describe your customer comes from
Behavioral –
knowledge of product
attitude toward product
how they use product
***You don't have to use all these characteristics!
Only use the ones that make sense for your key customers and business.
Ask yourself, are there specific qualities from above that are common in the groups of customers you serve?***
Only use the ones that make sense for your key customers and business.
Ask yourself, are there specific qualities from above that are common in the groups of customers you serve?***
Another way to think about this is through the lens of an Archetype, which is “the original pattern or model from which all things of the same kind are copied or on which they are based; a model or first form; prototype” (Dictionary.com).
You can describe your customer as an Archetype to help you describe the following about your customers:
who the most likely customer is in a descriptive way
what they need emotionally
what goals drive their purchasing behavior
what ways they buy
what motivates them to buy
when/how they make purchasing decisions
We learn to talk about our customers through these archetypes to help us with future sales and marketing strategies. Think of the archetype as a way to better focus on how and where to find your customer and also the future marketing content you'll use to persuade them to learn more about you.
Think about a story or quick summary you could tell about the customer that uses all their main characteristics.
Keep in mind, you may have a few archetypes. We call this customer segmentation, where we can bunch together similar key customers together into different groups. This way we can understand and know how much of each archetype we might have. Each group of customer segments add up to make a whole market.
Example, if you are looking for how many households make more than $25K a year because that is what someone would need to be able to pay for your services, you can drill down into a town to see this
EXAMPLE 1
A mobile dog grooming business based out of Maine.
Click here to see the information they gathered about their key customers.
What similar information could you find out that would pertain to your industry?
EXAMPLE 2
A beauty salon is focused on esthetics and body work, like massage. Here is an example of how they start to understand their key customers, which they have identified as 2 groups.
Customer Segment A
Demographic: woman, 40 – 60+, have children out of the house, income over $50K
Geographic: Lowell
Psychographic: like to relax, socialize, brand name clothing, luxury cars
Behavioral: looking for bi-weekly salon visits
Archetype – older women who don’t have children in the house, with disposable income looking for relaxation and who like to socialize with other women in a beautiful setting.
How reached - on Facebook, community pages, word of mouth; want to be cultivated and feel like they are part of a special group; want offers that give them a package deal for a discount.
% of Market - about 40%
Customer Segment B
Demographic: woman, teenager – 29, single, incomes of under $35K
Geographic: Lowell
Psychographic: really into beauty and fashion, being hip, but also price conscious
Behavioral: looking for one time activity with friends
Archetype – are young women who love to follow the latest fashion trends, who are looking for value priced fun events to hang out and socialize with friends and whom are influenced by YouTube videos.
How reached - Target Market B are reached on Instagram and YouTube, video of the salon related services; want to come in and get out; would likely be interested in package deals with friends, special parties for makeup and hair.
% of Market -about 60%
In the end by whole total of key customers looks like this:
Figuring out % of Market:
If you were to have 2 key customer segments, they would hold 100% total together, but maybe only 60/40 each.
This is the info you want to know… you want to have a sense of which customers you absolutely need because they bring the most business to you, but also understand there are a few kinds of customers, but that some may be bigger than the other, but still important. This is good to know when making decisions about marketing and products.
Define Market Size
Who is MOST likely to need and buy your product/service?
Revisit
Go back to your key customer activity. Now that you have a good understanding of your customer and what they value & need; its time to figure out some numbers associated with them...
How many are there, how much will they spend and how often?
How many customers will you have each day/week/month?
How many types of customer are there? Breakdown the total market you think you can capture into segments. So if your whole market is 100% break down each customer by type.
Ex: as a cafe, I will have 2 target markets
80% grab and go; 20% dine in.
Use these segments to define how much and how often they will spend.
GOAL: Figure out how big your overall market size could be and understand the rationale for what % of that market you think you can capture
We use this info to define your market opportunity and to make financial projections. These numbers are very important and can't be made up. You have to have facts to figure this out. Use a mixture of ways to provide you with a strong, broad analysis.
Look at the examples below to help you figure out facts that you can feel confident to use as educated guesses as you forecast the future.
Ways to determine market size:
You will want to use a combination of the following to help you figure out market size. It will depend on your industry and what information you have access to.
WAY 1
Traditional way - a top down approach where you try to figure out how big the entire market is, then whittle it down to how many you can reasonably access.
Start with the TAM or Total Addressable Market. From there, you determine the SAM or Serviceable Available Market, or the portion of the market you can reasonably access based on location or business model. Then the SOM or Serviceable Obtainable Market, is the actual amount of the market that you will realistically capture. Learn more about TAM, SAM, and SOM here at HubSpot.
What number of potential customers can you actually reach each day/week/month/year with all your marketing?
Once people are engaged with your marketing, how many will want to purchase?
How often will they purchase? Day/week/month/year
Will they repeat buy? How often?
Image from Hubspot
GYou can use market data and demographics as well as industry trends and info to help understand the amount of the market you can capture. Keep in mind, this is a deeply researched area of market research and requires a lot of data analysis to get to these numbers. But it is not impossible.
WAY 2
MVP way - once you start selling, you have actual data to use and extrapolate
How many sales per day / week / year
Are there seasonal changes or other influences
How many different customers per day / week / year
Are there seasonal changes or other influences
WAY 3
Bottom up way - think about how many you need to cover all your expenses
What number of potential customers do you need to cover your costs?
How much do you need them to buy?
How often will they purchase? Day/week/month/year
Please see example below to see how you can combine all the info to help you figure out your market size using the traditional top-down method.
Example 1
Hip salon in Lowell specializing in natural/kinky hair. One target market is women between the ages of 20 - 40 who go natural.
Facts to help get to a conclusion about the market opportunity:
GEOGRAPHIC:
The Lowell area has a population of 111,000 people
DEMOGRAPHIC:
26% (28,860) of those identify as Hispanic/Latino or African American
Out of the 28,860, about 50% (14,430) are women
PSYCHOGRAPHIC:
According to industry research, 50% of that population will not care about this salon because of their age and/or the way they do their hair
Based on industry research, people with natural hair spend about $25-30 a month on hair products
PROJECTIONS:
This leaves a market of 7,215 women in Lowell (the SAM)
We think we can capture 5% of that population; roughly 360 customers a month (the SOM)
From that, it can be estimated that this 5% will spend at least 30% on products at the salon, so $7.5-10 a month = $2,700 - 3,600
This helps us get to a confident $2700 revenue stream for hair products a month
Example 2
A downtown Lowell restaurant serving quick healthy lunch options.
Using DemographicsNow, the owner can do a consumer expenditure search to find out how much on average consumers spend in the area by mile (1,3 and 5 miles out).
The data is not always 100% useful, for example, the consumer expenditure is "food on out of town trips", not spending for lunch out at restaurants. But, it is still useful to do just in case there is a nugget of useful info, for example, at the bottom is lists other business's sales volume. This could help understand how much in sales they might be able to make compared to others.
Example 3
A chef wants to open a new organic cafe in Lowell.
Facts to help get to a conclusion about the market opportunity:
INDUSTRY RESEARCH:
30% of consumers care about eating organic when eating out (Green Restaurants Mag)
People are willing to spend $5 more per meal if it is organic (Massachusetts Restaurant Association)
PRIMARY RESEARCH:
The chef finds a comparable restaurant in Lowell that is healthy but not necessarily organic; this will help figure out a basic stream of customers. She sits in the restaurant during the most busy times (breakfast and lunch) for one day a week for 3 weeks; keep a tally of # of customers and how much they spend on each order (keeping track of what they got, then looking at prices).
The chef finds a comparable restaurant in Massachusetts that is organic; does the same careful watching.
PROJECTIONS:
Analysis of all research helps the chef to figure out that on average, breakfast will have 50 people spending $10 each; lunch will have 100 people spending $15 each.
Example 4
A baker wants to do allergen-free treats and desserts.
Facts to help get to a conclusion about the market opportunity:
INDUSTRY RESEARCH:
According to AAFA.org, 26 million (10.8%) adults in the United States have food allergies.
GEOGRAPHIC: The Lowell area has a population of 111,000 people - extrapolating the 10.8% would mean that 11,988 adults in Lowell may have allergies.
PSYCHOGRAPHIC: "51% of consumers say that they’ve eaten at least one pre-packaged cake that was baked in a local store, with 47% noting that they have consumed at least one individual cake in the past year. (Mintel)"
PRIMARY RESEARCH:
A survey provided to 300 people at an event in Lowell calculated that about 10% or 30 of them also said they have food allergies.
PROJECTIONS:
This helps the baker confidently know that their SAM is about 12,000 people in Lowell.
Since about 51% said they've eaten from a local store, then we can guess that the SOM could be about 6,000 people.
From that amount, the baker can guess that about 10% of those people could become her customers purchasing at least 1 cake a year or 600 cakes.
Examples 5 & 6
Interesting ways to get market opportunity number projections -
Listen from :43 to 5:07
This outlines how to go from population of 600,000 to little over 2500 for the pool of love for graduates in Boston.
2. Listen to Dick's Sporting Goods as he explains that when they first started out, they would go to neighborhoods near potential retail locations and would count the number of play sets in backyards with the thinking that families would probably need sporting goods, so if there were a lot, they tended to locate there.