"Database marketing" and "Data mining" are catchwords that you might have seen in business publications and websites, but how do you actually go about turning your customer data into additional revenue and profits?

And is "database marketing" only applicable to big corporations with huge IT budgets?

Not at all - if you can use a spreadsheet, you can extract meaningful data from your customer list and use that information to serve your customers better and drive more sales and profits at the same time.

In fact, in many cases, the less complicated your system, the better. I spent some time implementing data analysis systems for a mail order company a few years ago. The lesson that came out of it all was this:

A simple system, which the non-expert can understand and use in real time, is much more useful than a super-duper bells-and-whistles system that is so difficult to understand only a PhD can drive it.

A system that doesn't require any additional hardware or software expenditure is also much cheaper to implement so your risk is limited and your Return On Investment (ROI) rapid.

What data do you need to collect?

The most important thing is to be able to match up customers with their purchases. That allows you to get an idea of purchasing trends and be able to act on what you see on an individual basis.

At a minimum, you should record for each customer:

1. Recency: Date of most recent purchase.
2. Frequency: Total number of purchases.
3. Monetary: Total dollar value of all purchases.

These are known as the "RFM variables", and they're very useful for turning your data into higher customer satisfaction and profits. What's more, it doesn't matter what kind of business you're in, RFM works every time!

There's a simple explanation why this is so. Humans are creatures of habit. A customer who bought from you recently is much more likely to do business with you again soon than someone who bought from you two years ago.

So too with frequency - someone who's already purchased from you 20 times is more likely to continue purchasing than a 3-time customer.

That information is useful when you have to decide how much marketing budget you can afford to spend to get the most profitable result.

Segmenting your customer list for fun and profit

Another relatively simple technique is segmenting your customers according to the value they add to your business. By doing that, you can start answer these 3 important questions.

1. Who are my high-value customers?

You can develop strategies to help keep them happy and retain their custom. Your strategy might involve spending a little more marketing to these customers - it really is worth it.

2. How are high-value customers different from low-value customers?

With this information, you can develop strategies for nurturing more high-value customers.

For example, customer value is often highly dependent on which product or service the customer initially purchased. I saw an example of this with a mail order company I worked with. In their high-value segment, 85% of customers had initially purchased Product A in preference to Product B .

They adjusted their strategy to advertise Product A more frequently instead of Product B, and succeeded in acquiring more high-value customers on the same marketing budget Result: more profit.

3. Who are my low-value customers?

They're probably costing you money to market to. Your response will probably include decreasing marketing expenditure on this customer group. For example, don't continue to send low-value customers direct mails for months or years after their last purchase.

Simple, practical database marketing is not beyond the realm of small businesses. Quite the opposite - you can put simple systems in place which will help you to conserve your precious marketing dollars and help you understand your customers better.

Practical Database Marketing :: RFM Consultants
Serving clients in Brisbane, Sydney, Melbourne, Perth and around Australia

William Swayne is a copywriter and small business marketing consultant based in Brisbane, Australia. He can be contacted at Marketing-Results.com.au