Depending upon the client’s situation, one of the top five actions we take is to perform an A, B, C analysis of their customer base. If you are unfamiliar with this concept essentially the client generates a list of all their customers showing total combined revenues and margin over a recent 3 or 5 year period. This exercise can be valuable for many reasons that impact sales, marketing and operations. After this report is created, the next step is to perform a Life-time value analysis.
First, let’s explore the ABC Analysis. In looking at the report you will generally see the following trend.
* 15% of clients= make up 65% of sales=A
* 20% of clients= make up 20% of sales=B
* 65% of clients= make up 15% of sales=C
NOTE: 35% of your clients make up 85% of your business.
Secondly, the %’s may not be precise but what you are looking for is where to draw the lines where you can see a separation; once you have these lines drawn we recommend you schedule a meeting with the sales team and management team to discuss what you have found. You want to analyze the various segments and look for common demographics of the A’s, B’s and C’s. Examples might be:
* What are the total revenues?
* How many employees?
* What vertical markets?
* Number of locations?
* Types of Services/Products they purchased
What you are specifically looking for are the common traits of the A’s and B’s. Then those kinds of prospects with similar demographics become your only targets for marketing and for sales prospecting. If you purchase data bases, those demographics become your criteria, in your CRM system call frequency patterns are set to connect with all the A’s , B’s, six times a year. Your focus becomes to capture more A’s and B’s not C’s.
The reason you focus on the A’s and B’s is for whatever reason they are in need of your services, agree to your value proposition and most likely are your best clients.
Third, you look at your C customers and perform a Life-Time Value Calculation. This formula is actually good for all clients, but focus on the C’s first, this analysis is run for the past 3 or 5 years showing the total cost toacquire a client, cost to support the client over the 3 or 5 years and the real profit generated by the client. In many cases we have found that many companies are over supporting a large number of their customers and many C based clients are also the slow pay, unhappy customers that cause the most pain.
Take an analytical approach to understanding your customer base, it will drive better messaging, increase order rates and improve your profitability-sounds like an excellent formula to get started on 2015!
About the author
Ken Thoreson “operationalizes” sales management systems and processes that pull revenue out of the…