All customers may have been created equal, but they don’t have equal value to you. In fact, some may not be worth your time at all.
You can get a good fix on a customer’s cost-benefit by looking at two underutilized metrics:
- Customer Acquisition Cost (CAC): From lead source to the selling process to maintaining relationships, how much is it costing you to win (and keep) every customer.
- Customer Lifetime Value (CLV): How much revenue has the company earned as a result of that customer relationship? Or, how much does it stand to earn?
Of course, when it comes to numbers like these, managers generally need to assess results on a case-by-case basis before deciding whether a customer is actually “worth the trouble.”
Some intangibles to consider:
- Does the customer provide valuable word-of-mouth business, referrals, or a certain degree of prestige in the eyes of other prospects?
- Is there a good possibility the customer will increase in value
over time, as it grows and increases its volume per sale?
- Has the customer’s CLV decreased consistently year after year? If so, what’s changed? How can you reverse that trend?
- Break down CAC by rep to determine whether specific reps spend far too much time and money focusing on customers who don’t provide a significant return.
- Are there specific salespeople who know how to increase CLV over time? If so, how do they do it, and how can you train other reps to do the same?
Source: ““How Sales Process Can Grow Share of Wallet,” by John Kenney, Sales Benchmark Index, 1/12/12.