Monday, February 13, 2012

The Value of a Customer

Customers are the core component of any sustainable enterprise. The science of attracting and keeping customers is, therefore, of critical concern to entrepreneurs and business leaders. So, what are your customers worth? The secret to assessing this value lies in the key marketing and sales metrics of your business.

Marketing is about generating leads. You need to measure each lead generation activity separately, including the total number of leads procured and the fallout percentage as you qualify and prepare the leads for the sales cycle. Many lead generation activities have costs and, when applied correctly, you will determine exactly how much each qualified lead costs.

Sales is about converting those qualified leads into paying customers, yet there are usually several stages in this process. Some never make it into the sales pipeline, and others exit throughout the process. Ultimately, each sales cycle activity, like an introductory phone call, face-to-face meeting, or proposal presentation, filters into a conversion rate that will help you calculate the cost per customer acquisition.

Now that you know how much it costs to acquire a new customer, you need to assess the overall value that customer will bring to your business. If customer acquisition costs exceed the lifetime value of the customer, then your business will eventually fail. The goal should be to have the lifetime value of your customers far exceed the costs to acquire that customer by as many multiples as possible. Measuring, tracking, tweaking, scrapping, and pivoting are all things business leaders should do regularly with their marketing and sales efforts with an eye toward augmenting the value of the customers or decreasing the costs to acquire them.

Technology can either help or hinder those improvement efforts. For many businesses, several different software applications are often used in the marketing and sales processes of a company, including email software, task lists, opportunity pipelines, contact information, and more. Since these programs typically don't communicate well with each other and the other software used to run the business, many leads and prospects are lost before they can become a customer. In addition, once you gain a customer critical information is often lost and eventually those customers leave.

The idea for writing this post came from a recent conversation I had with some of the team at Fishbowl Inventory, a company based here in Utah. They have a powerful inventory and asset tracking program that integrates with Quickbooks as well as a more powerful stand-alone product that acts as an ERP (Enterprise Resource Planning). However, their customers were having this problem of tying all of their critical marketing and sales prospects and contacts into the one central location where they process orders and keep track of the rest of their business.

Their customers understood this lack of connection was causing them to miss lead generation opportunities, have a higher fallout rate from their sales pipeline, and lose new customers because critical information was lost from the marketing and sales activities related to each customer. In response, Fishbowl just launched a CRM (Customer Relationship Management) program that connects all of the marketing and sales activities together with their Fishbowl Inventory and ERP system. It's called Pipeline Contact Manager (an appropriate name). The point is this: running your CRM in isolation from the rest of your business software will likely cost you time and money and ultimately decrease the value you can earn from each customer.

Key Take-Aways:
  • Know your marketing metrics
  • Know the conversion rates of each step in your sales cycle
  • As you consider using technology to help you track your sales and marketing metrics, make sure it integrates with the main system you use to run the rest of your business.