September 18, 2006

Getting the Right Customers Loyalty

I've been thinking about customer loyalty thanks to the ExecuBooksBlog and a book called Loyalty Myths by by Timothy L. Keiningham, Terry G. Vavra, Lerzan Aksoy and Henri Wallard. I'm adding this book to my personal library, since reading it can lead to improved sales development and company profitability. Here's why and how...

Its been my experience that 20% of a business' customers generate 80% of the profits. The new thing in this regard from "Loyalty Myths" is that 60% of your clients could be generating negative profits. It would seem that most companies invest in programs to enhance the loyalty of clients that can only hurt the bottom line.

I agree with "Loyalty Myths." Too many of our customer facing people may be focused toward accounts that simply don't deliver the revenues to sustain a profitable relationship. Whats also possible is that other clients, the ones that deliver way more profits, may be getting no attention at all.

Initiating cross-sell, up-sell, redeploying resources, renegotiating contracts in my opinion is the easy part. Objectively identifying the profitability of every single one of your current and potential clients is where the challenge is. Here are some simple ideas that can help you in this regard:

1. Track each account/client profitability for the last 12 months. Not just from a gross margin perspective but also include all customer facing resources. Once done then re-rank your clients. Make decision to redeploy, etc.. based upon what you see. Do this every 3 months;

2. If you sell to consumers, create 4 or 5 broad based customer segments. Tag each consumer and track the profitability of each segment per item 1 above.

3. Tag the unprofitable clients and immediately a plan to migrate them to profitability to exit them;

4 Have your sales team forecast new account revenues for the first 6 months. Conduct a review after the six months and make decisions about resourcing, etc...;

This should help you to get the loyalty of the right customers.

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