Drilling Down

Turning Customer Data into Profits

 with a Spreadsheet

Site and Book topic:

Maximizing marketing ROI with customer behavior analysis

Recency: Web Retailing Example 
Drilling Down Newsletter # 30: February 2003

Drilling Down - Turning Customer
Data into Profits with a Spreadsheet
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Customer Valuation, Retention, 
Loyalty, Defection

Last Purchase Date Before Newsletter Drop

The owner was slack-jawed.  How could this be?  Is it possible that (top row) almost 1/3 of the responses came from 3% of customers?  That (top two rows together) nearly 50% of the responses came from 9% of customers?  The owner's head was swimming!  What was the implication here?  Is it possible - and just this simple - that the response rate of a customer to the newsletter could be predicted based on how many days ago they last made a purchase?  The implications were stunning.  One simple calculation.  Incredible ability to predict purchase behavior.

Of course, my fellow Drillers, the question really is what can the owner of IMIssAsia do with this new information to make the business more profitable?   We'll get to that issue next month, when the owner discovers an even more stunning connection between the newsletter and the purchase behavior of subscribers - and figures out how to increase profits by taking advantage of it. 

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If you are a consultant, agency, or software developer with clients needing action-oriented customer modeling or High ROI Customer Marketing program designs, click here.  If you are in SEO and the client isn't converting the additional visitors you generate, click here.
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Questions from Fellow Drillers
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Jim's note: If you still don't know what RFM is and how it can be used to drive increased profitability in almost any business, read this.

Q: Hi Jim,

Our industry is facility management services where a headquarters with chain locations contracts with us to manage their facilities in all their markets.  The President is interested in a "CRM Solution" but is concerned about the ROI he might expect from implementation.  Do you know of any number that I can pass along to him that would placate his insistence on knowing in advance what the ROI will be?

A:  Bad news: No, not really.

Good news: You can figure it out, which is something nobody did in the past and is why so many "failed" at CRM.  You might not even need any new software to "do CRM", though it depends on what you have now and what the objective of the CRM program is (you do have one, correct?).  But the software required is certainly not millions of dollars and if you only have 1000's of clients you can probably do it with some combination of ACT! or GoldMine, MS Access, and MS Excel. 

The key question to ask: do you really know how your customers behave?  In this kind of contract business, I imagine the central issue is this: Can you predict which customers are likely to re-up a contract, and which ones are not?  And then can you use this information to focus on the ones less likely to re-up, and take steps to make them more likely to re-up?

Sometimes it is just a matter of better customer service.  In this case, what you need is better service practices, not "CRM".  From a distance, it is very difficult to know what the issues might be in your company.

Here's a test you can do to find out where you might be on the road to answering the CRM question.  If you cannot accomplish one or more parts of the following, you are not ready to even talk about "CRM", and need to do some more internal research.  These steps, by the way, are the ones everybody skipped on the first round of CRM and will pave the way for a successful implementation if you decide to go with a CRM approach:

1.  Define a "best customer".  It's not just sales, you have to take into account margins, service costs, etc.  Don't worry about finding exact financial numbers.  Think about best in relative terms - these customers are better than those customers, and you are pretty sure it is true.  If you can't get to this point, you probably need better data collection before you think about a CRM project.

2.  Once defined, how many of these customers left you in the past year or 2 years or whatever the right time frame is for your business?  If you typically sign 3 year contracts, then it might be "in the past 4 years".  Also identify best customers who stayed with you and renewed.  If you can't get to this point, you probably need better data organization before you think about a CRM project.

3.  Group best customers who left and best customers who stayed and compare the two groups.  Look for similarities and differences.  Is it the kind of business they are in, geography, number of "trouble calls", billing disputes?  You will almost always see patterns that will lead you to conclusions on what circumstances create a best customer who stays and one who leaves.  If you can't get to this point, you probably need better data analysis before you think about CRM.

4.  Now that you know what causes customer defection and retention, figure how much more money you could make if you could keep a certain percentage of these best customers that would otherwise leave.  If you can't do this, you probably need better customer reporting before you think about a CRM project.

5.  Figure out what it would cost to keep this certain percentage of best customers that would otherwise leave.  Is it better targeting in sales upfront, better customer service, better billing practices?  If you can't do this, you probably need better financial reporting before you think about CRM.

6.  Calculate your ROI and either decide to do it or not.  If you can't do this, don't invest in CRM, because it is going to cost you more than you will make by implementing it!

Sorry I don't have "a number" for you, it simply does not work like that.  But you can find that number, a number that is right for your business, with a little detective work.  If you get hung up with any of the above steps, perhaps I can help.  Many businesses can get great results following the above plan.  If you are a larger organization with a lot of complex issues, you might need the industrial strength version of the above, described here.

Jim

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I can teach you and your staff the basics of high ROI customer marketing using your business model and customer data, and without using a lot of fancy software.  Not ready for the expense and resource drain of CRM?  Get CRM benefits using existing resources by scheduling a workshop. 
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That's it for this month's edition of the Drilling Down Newsletter. If you like the newsletter, please forward it to a friend - why don't you do this now while you are thinking of it? Subscription instructions are at the top and bottom of the newsletter for their convenience when subscribing.

Any comments on the newsletter (it's too long, too short, topic suggestions, etc.) please send them right along to me, along with any other questions on customer Valuation, Retention, Loyalty, and Defection right here.

'Til next time, keep Drilling Down!

- Jim Novo

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