That time of year has arrived: objectives and financial forecasts for next year need to be established. This includes the turnover to be realised, the number of new customers and so on. But the value of the customer base is hardly ever included as part of these objectives. A missed opportunity.
Determining the yearly objectives is a recurring item on the agenda of every company. The goals of the past year are honed and the bar is raised once again. Hereby, companies want to give an indication that their ambition and sense of reality take the lead.
But what many plans concerning annual targets have in common is the perfunctory impression they make. This is only confirmed by the ease with which they are scaled down as soon the achievability comes under threat.
What’s more, these plans hardly ever present a clear vision of the value of the customer base. That concrete objectives for it remain absent should come as no surprise. At best, parts of it will be included in certain objectives. Often, a retention percentage will appear that you hope will grow in the future. The same applies to the number of new customers.
But what is missing in that context, is the approach that the customer base is a source of invaluable information in regard to countless aspects of your business.
You can find a great deal of information in your customer base that will not only help you formulate concrete goals, but also substantiate goals. That is why it is useful to consider whether there is a connection between certain trends in regard to your customer base. I will give a few examples of the most prevalent commercial objectives:
- Cross and up-selling
Acquisition: the number of new customers must increase
Try to create an inventory of how many new customers the sales team was able to bind to your company over the past few years. Can you spot a trend? Does the number increase, or does it fluctuate? What is the profile of these new customers? In other words: which products and services do they purchase and what is the turnover? And even more important: what did it cost you to acquire these customers?
Did you, for example, offer considerable discounts or other introductory gifts/benefits? By gaining insight into this information you will have a handle on how you should determine the budget for the coming year, or, based on the available budget, you will be able to consider exactly how many new customers you can acquire. By inventorying your new customers, you will discover points of departure to determine your prospects for the new year.
If the number of new customers lagged behind these past years, even though the sales team made considerable efforts, then it would be wise to examine which factors can offer an explanation for this. Perhaps the sales people are applying antiquated sales techniques? Or perhaps they are not utilising all the strengths of your company to their full potential? In this case, it is recommended that you take into account what other kinds of acquisition techniques you could apply for the recruitment of new customers.
Retention: customer fall-out must be reduced
Take a look at the list of customers of the past few years and examine which of them still purchased your goods or services last year. How many left during that period and what value did they represent? Can you spot a specific development? Are there more or less customers leaving? If the answer is yes, was that part of a conscious strategy?
In order to understand where these trends come from, it advisable to investigate whether there is a connection between certain customer groups. Who were, for example the customers that left, and can we determine (or hypothesise) why they left? It may turn out that the customers that left were all parties that happened to be struggling financially.
You can find a great deal of information in your customer base that will not only help you formulate concrete goals, but also substantiate goals.
If this was the case, you would do well to examine the financial health of your existing customers. Can you, for example, reasonably expect more customers to leave? This is all relevant information that you need to take into account when you determine your retention targets.
It cannot be true that only external factors play a role in the retention of your customers. Perhaps your products are considered expensive or no longer relevant. Or could it be that your contact frequency with your customers is too low? Saying farewell to customers can also be part of a conscious strategic decision: you are going to change your product portfolio and this matches your current customer base less well; make sure that the value of the new customers will compensate for this in the long run.
Reactivation: Another kind of acquisition
Customers who left earlier, do not have to remain out of sight forever. You can perhaps give these customers good reasons to return. Reactivation is another kind of acquisition, but it is much cheaper; these former customers already know your brand and what you can offer.
Cross and up-selling: generate more turnover among existing customers
For cross and up selling objectives, it is relevant to inventory your existing customers and determine the turnover they generated over the past year. Examine whether there is an overlap between the products that they purchase and the products that you sell with a good margin - perhaps this will also interest your customers. This will make it possible to make cross-selling “bridges” to new customers who may also be interested in combinations of these services/products. For the up-selling, you can look into whether some customers may wish to order more of one product or expanded the services they already purchase.
Cross and up-selling tactics can increase the value of your customer base and may even compensate for your disappointing retention/acquisition numbers. In order to entice them to do so, you may have to devise an interesting discount campaign to convince them. This is why you must determine how much budget you will need to realise your cross and up-selling objectives.
Every manager prefers, of course, to present healthy growth figures and successful, achieved targets at the end of the year. Nobody likes to thinly disguise mediocre results that will hardly be considered plausible by anyone. So don’t ignore the value of your customer base and be sure to include it in your targets for next year. Precisely by looking back, you will arrive at a substantiated vision for the future.
About Mark Zwart
Mark Zwart graduated in Cognitive and Theoretical Psychology. He focused on imitating human behavior in neural networks. This led to his interest in a numerical approach to consumer behavior and the growth of customer value. For 15 years he has been passionately engaged in marketing intelligence for B2B and B2C companies and for charities. For example, he worked on projects related to customer lifetime value, the optimization of customer contact strategies, customer segmentation, the construction of data warehouses and dashboards, etc. He likes to share his expertise and experiences with others.