Three ways that the value of your customer base can be misleading
What do you think the value of your customer base says about your company? Before you decide, remember that sometimes a trend can be misleading as it only tells part of a bigger story...
Your customer base holds more information than you might have suspected originally. This information gives you insight into the current status of your company, and it shows what you can expect in the future. This is therefore essential information that is well-worth studying further and interpreting anew.
Every company is constantly changing. At a customer level, you will find a number of visible and less visible trends. Often, a trend is actually part of something bigger. Whether or not a certain trend bodes well for you will only become clear once you have the overall picture in front of you.
In this, the accurate interpretation of the information derived from your customer base is essential. Only once you have the right information can you make well-considered choices when it comes starting up, ending or adjusting customer campaigns.
But how can you put this into practice?
Below, I describe three scenarios that demonstrate how a trend can be part of a less visible overall picture, and how that overall picture is of crucial importance to be able to interpret that trend properly.
Scenario 1: You record a big turnover but customers are still walking away
Your turnover figures are good and every year, you achieve the proposed objectives. All signs seem to indicate that your company is doing well. But precisely what your turnover figures fail to show is the disturbing customer churn that is taking place in the background. An increasing number of customers are no longer using your products or services. But, because a few customers are still purchasing in large quantities, the loss of turnover from customer churn is being compensated.
This explains why the outflow of customers has not resulted in a decline in turnover. The churn and its underlying cause are hardly noticed and subsequently not addressed. In the long term, this can have a disastrous affect on the financial situation of your company.
All signs seem to indicate that your company is doing well. But precisely what your turnover figures fail to show is the disturbing customer churn that is taking place in the background.
The same scenario is possible when the focus of your company is aimed at drawing a certain number of new customers. At the end of the year, it appears that the sales team has succeeded in this, which is good news at first. It appears that your company is growing. But when it becomes clear that, during that same year, at least the same number of customers also left, the image suddenly looks very different.
Scenario 2: Customer churn is low, but so is the number of new customers
Financially, all is still well: turnover is increasing and the customer churn is minimal. It could be seen as a compliment that your customers stay with you for longer, but when your customer acquisition is also low, it could mean there are problems with your product: perhaps our product or services are no longer relevant to consumers because of the latest technological developments or changing needs.
If this is not the case, it could very well mean that your marketing or sales message is not resonating on the market. Or, it is a conscious choice to not acquire too many new customers because it detracts a great deal from your margin. Whatever the case may be, you need to be aware that little change in your customer base could very well jeopardise the future of your company. You can only respond to this when you willing to see that your sales team is discovering that is difficult to attract new customers.
Scenario 3: A change of course results in disastrous figures
Those who make a drastic change often do so with an eye on the far future. In most cases, this means that sacrifices need to be made before your company can really soar again. A classic example by now is the digital transformation that every company has had to undergo. Such a transformation is often paired with sizable investments: in software and hardware, but also in training the personnel to make them comfortable with the new way of working and new systems.
Those who make a drastic change often do so with an eye on the far future. In most cases, this means that sacrifices need to be made before your company can really soar again.
As with so many things, here too, the costs will precede the revenues. This means that your figures will be under pressure for some time to come. A drastic change of course could result in part of your current customers no longer feeling at home with your organisation: customer churn will increase. When your change of course was the right move, you will also see an increase in the number of new customers. This increase, however, shall occur slowly over time, and shall definitely bring more costs. Here, be sure to also keep an eye on customer turnover: the turnover of new customers should, at the very least, be comparable to the customer outflow.
But, once the necessary changes have been implemented, they will pay for themselves many times over. One necessary condition for this is that upper management is prepared to look beyond the short term. If they don’t, the risk exists that the abrupt change of course will be terminated prematurely and all investments will have been for naught.
The success of many changes of course lies in the preparedness of upper management to dare to look beyond the disastrous, temporary figures and see what the future has to offer.
The three scenarios above describe the importance of having insight into the overall picture of your customer base.
Based on just one single aspect of it, you cannot make thorough considerations simply because you are only seeing one part of an overall reality. Broaden your perspective and you will find that you will have a better handle on how to grow your financial successes even further.
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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...