Want to know how to uncover your own golden $3B segment?
Have you ever conducted a full-scale Customer Profitability Analysis?
I’m not talking about simple revenues or contribution margins by customer. I mean a full-scale analysis that includes “Cost to Serve.” This analysis will determine the full profitably for each customer. Many times we push this report onto the accounting or finance departments. I wholeheartedly disagree with that. Your marketing team should conduct it. A Customer Profitably Analysis is one tough cookie to complete, but it will be worth every effort.
I once led a team working on a giant Customer Profitability Analysis. First, we had to gather and clean detailed data from 4 different databases. These databases spanned across finance, sales, operations, and marketing. Each department tracked unique customer information and called the same data something different. Next, we had to normalize or harmonize the data into one large excel. Last, we had to analyze the data to present a clear picture of customer profitability. You want to have an excel that you can manipulate and view data from all different angles. Once we completed this process, the Customer Profitability Analysis was a treasure-trove of information.
Why should your marketing department conduct the Customer Profitability Analysis?
They will uncover more information than just profitability. I’m willing to bet once you’ve completed the analysis; your previously defined value props, customer personas, market sizing, and segmentation will all change. In fact, they will improve. The marketing department will find more “ah-ha’s” in this analysis than any other piece of market information.
You might think your most significant or key accounts are your most profitable. I’ll challenge that assumption. They’ll bring in the most revenue, but won’t be the most profitable. You might also think your smallest accounts would be least profitable. Again, I challenge that assumption. Once you determine your cost to serve and full customer profitability, a lot of assumptions will fall apart.
You’ll find new opportunities and alternative ways to serve your customers
If you conduct an in-depth analysis like this one, you’ll be able to find new opportunities. Plus, identify alternative ways to serve your customers and cut wasteful spending. In fact, from the analysis my team conducted, we identified a new $3B segment. The segment was sitting there right in front of everyone for years. You are probably asking yourself, “How can a $3B segment be overlooked?” Great question. All eyes were on the traditional and significant revenue streams. The group we were consulting missed the combined mass of smaller, non-traditional revenue streams. It only too minor tweaks to capture these customers.
The other important factor, they could capture this market through less costly sales channels. They already had the skeleton for inside sales team and e-commerce. We recommended a small tweak to the current portfolio, a few marketing materials, some messaging, and bam, market activation.
Here’s the not so fun part
As I mentioned above, your company will have it’s own way of collecting, storing, and analyzing customer information. You'll find it spread across different departments and databases. As you start pulling together the data from each department, you’ll find discrepancies. Don’t dismiss these as just a data quality or data input issues. Find the root cause. Search for the workarounds.
Challenge your team to ask, “why?” Why are we tracking it this way and is there a better solution? Why aren’t these departments working together? Why are there workarounds? What you’ll find are gaps and workarounds that are causing two major problems. One, your organizational nightmare is negatively impacting your customers. Two, this nightmare is raising your internal costs to serve your customers.
Add Voice of Customer to your analysis
I’d also recommend conducting Voice of Customer (VOC). Conduct VOC once your marketing team develops an in-depth understanding of the quantitative numbers. Launch your VOC campaign as you move into the qualitative demographics/psychographics. Sure, conduct an NPS study, but also call a decent sized sample of customers and prospects. You should include old customers that you may have lost and disgruntled ones too. VOC will only add another layer of data to your analysis.
Define goals outside of understanding profitability
Yes, the primary goal is to determine customer profitability. Through centralizing customer data into one place, I guarantee you’ll find your golden nuggets. Enough to make this problematic analysis worthwhile. I’ll list a few goals below to challenge your team to answer by the end of this analysis.
- Are your Key Accounts your most profitable?
- Can you reduce your “cost to serve” through adjusting your channels?
- Can you identify new Cross-sell and Up-sell opportunities?
- Segmentation & Targeting
- Can you identify any new segments?
- Are you targeting the right customers & prospects?
- Can you serve a “prospect” segment through lower cost channel?
- By analyzing the data, did your customer personas change?
- Do you need to adjust your value prop(s)?
- Look-Alike ProspectsCan you identify prospects that are currently considered low on your list with attributes that look-alike current profitable customers?
- How can we improve customer satisfaction through cross-functional alignment? (Sales, marketing, finance, and operations teams)
Work with a cross-functional team to develop the strategy and tactics needed to increase profitability. Go out and capture the newly identified opportunities.
Have you ever uncovered a golden nugget through a profitability analysis? I’d like to hear from you.