In the digital age, there are more and quicker personalised channels than ever for engaging and nurturing prospects and customers, which can enable your sales team to get a jump on closing the deal. What too few companies ask, however, is whether they should.
What organisations today really need to look at is the projected Customer Lifetime Value (CLV) of any potential or existing client they plan to invest in working with – and determine which customers will actually be profitable. Analysing CLV also enables companies to know at which point customers become profitable, which is essential to retention programmes, financial forecasts and sales targeting.
The simple fact is not all customers are equally profitable. Gartner Group research shows that 80% of a company’s future revenue will come from 20% of its existing customers – so identifying and working to retain the most valuable is a crucial factor in future success. That’s the tough part.
To understand and effectively use CLV, firstly you must determine the key CLV metrics for your company. These can include frequency of purchase, what products or services are bought, increments of spend, total spend over a set period, lapses in purchasing, what is spent on service and marketing to maintain customer’s loyalty and other quantifiable factors that enable you to work out the overall profitability of the customer.
This and other less measurable data, such as preferences, personal circumstances, lifestyle information and geo-demographic data can then be used to create profiles of customers for use in the segmentation for sales targets. The aim is to make sure you target the right client with the right approach at the right time.
Making use of all available information, both the metrics used to calculate CLV and the intelligence necessary to then close the sale with the best approach, is crucial to growing overall profitability in the era of Big Data. For every customer, new and old, each interaction, preference, behavioural indicator and other key factor needs to be recorded and readily available to sales and other teams supporting its efforts – this is something a Customer Relationship Management (CRM) platform makes both achievable and accessible.
With the information easy to tap into and assess, you can then generate strategies for hooking and landing the big fish, and even the minnows, that generate a profit, while easing on any customers you determine are actually hurting margins – regardless of size. CLV can be essential to guiding your upselling and cross-selling efforts, enabling you to determine which customers are worth investing efforts in – are they a high margin, big spender worth dining at a Michelin-starred restaurant, a smaller but still very profitable target worth valuable face time, or a major client that in fact you spend so much on to keeping happy, you actually end up losing money?
When it comes to new business, analysis and modelling helps to identify lookalikes of your most profitable clients, which enables you to cultivate their interest and ultimately tailor your approach when it comes time to talk sale. It is important to note that CLV is not static and the information used to understand various customer segments and their worth can also be used to extend CLV by informing upselling and cross-selling initiatives, as well as retention efforts.
Failure to understand and implement CLV-driven acquisition and retention strategies exposes a company to inefficiency and unproductive investment in customer-centric activities. Ultimately, CLV is about profit margin and not revenues. A customer might offer decent revenue flows but, if the spend to keep that customer sweet is too high, the relationship is likely strategically unsound, as the profit margins are minimal or even negative. On the other hand, CLV can also reveal when a customer, whose revenues are middling, is in fact a real profit churner worth seeking to build new bridges with – and that is definitely a piece of the puzzle you want to have.
By Matthew Ranger, Head of Sales EMEA, Maximizer CRM