- Copyright 2000
by ADV Magazine. Reprinted by permission of the publisher.
A Customer Insurance Policy
By: Mark Heisler and Suzanne Baldino Jones, Partners CBSG
Everyone thinks they know their customers, but that may not be the case. The point is, what you don't know can hurt your bottom line. Many people hold three commonly held beliefs about customers that, upon examination, just aren't so. They appear below, along with 3 new ways of looking at customers that will guide your business to a more profitable future.
Here's the first mistaken belief:
New customers generate profits; existing customers drain profits.
Think about this statement in terms of the investment of time and money spent in an attempt to turn a prospective client into a paying customer. Calculate your customer acquisition costs-all the marketing materials, research and preparation time, meetings, entertainment expenses, dog and pony shows, proposal writing, and more meetings.
Let's assume the prospect signs on the dotted line. At what point does the company recoup this sales investment and breakeven? Is it in three months, six months, or a year from now? Generating additional sales from existing customers costs five to 10 times less than adding new customers to your client list.
Try this step to determine your customers profitability:
1. Measure client profitability. The calculation starts at the prospect stage and continues throughout the customer life cycle. Track all sales/marketing time and expenses just like you track billable time and materials.
This leads us to the next customer fallacy.
Every business values its customers.
In reality, every business values its new customers, but few companies' really value its current customers. If you're like most organizations, your sales force is focused on attracting new customers. And, when all is said and done, everyone else in the company is consumed with performing tasks that satisfy internal needs. Where does this leave the customer? Surveys reveal seven of 10 customers stop doing business with a company because they feel ignored.
On to step two:2. Designate someone or some group responsible for advancing the client relationship beyond the initial sale. The primary objective here is to cultivate the three R's: repeat, reoccurring and referral sales opportunities. Responsibilities include going beyond typical support services provided by most companies. Don't forget to reward those responsible for generating these sales.
By designating responsibility for current customers you can begin benchmarking profitability. It's also easier to target your service resources appropriately.
Which leads us to the final myth.
All customers are created equal.
The Pareto Rule dictates that by assessing customers based on profits rather than sales revenue at least 20 percent of your clients generate 80 percent of your business profits. This assessment may reveal existing clients that are unprofitable. Support existing customers based on the impact they have on your business, not by how good they look on paper.
Time for step three:
3. Create "Tiered" Service Levels. Begin by grouping customers by profitability into three categories: "A" is the top 20%, "B" is your marginally profitable customers and "C" is the "unprofitable" ones.
We are not suggesting you disregard unprofitable clients. On the contrary, all customers deserve to have their needs met. Profitable customers, however, deserve special status. Be ready to take action prior to a problem occurring. Reach out to profitable customers and let them know you are thinking of them even when they don't "need" it.
Try these suggestions. Have a senior executive personally contact or meet with "A" client decision makers periodically if only to thank them for their business. When an internal problem occurs that may impact their business, make sure they are called before they call you. Finally, provide some services or certain materials at no chargeBy implementing these customer strategies, you will develop information to make better business decisions resulting in more focused sales efforts and targeted customer service support. And that will help grow just about any business.
Mark Heisler and Suzanne Baldino Jones are founding partners of the Competitive Business Strategy Group (CBSG), a management-consulting firm located in Mount Laurel, NJ. They are nationally recognized for their consulting, training and speaking on customer retention issues. They can be contacted through their website at www.cbsg.com or by telephone at (888) 411-5800.