Case Study
Boosting customer profitability
Insight
We were approached by a technology company to improve the accuracy of sales forecasts and funnel management.
So often the problem a client sees is the symptom rather than the cause. The underlying problem in this case was that all customers were treated the same, regardless of their size or potential. This meant that all customers received personalised time and attention with the sales team at their beck and call.
Not surprisingly the biggest £ opportunities came from the largest clients. But with limited time to spend nurturing relationships and networking the account, the nuance of decision-making was being lost.
The second financial implication of this was that on many occasions a customer visit was losing money. The sales team were celebrating gaining “access” to decision-makers and the business were delighted that the team were busy. But busyness is not always good business.
Solution
Firstly, we had to understand the cost of sales and therefore we had to work out how much a salesperson costs. Not just their salary, but the bonus, car allowance, National Insurance costs and so on. This was added to the proportion of costs for management and overhead. Finally, the fixed costs had to be added, like a proportion of rent for the space their desk takes up, the cost of an IT service contract and so on.
Once we had figured this out, we had the “fully loaded” cost of a salesperson and we could see what level of £ sales they need to achieve to pay for themselves.
The second angle on this was to work out which customers have the most potential. It’s not as simple as those who spend the most.
What we did here was to look at size and profitability and then we overlaid margin and discounts. We also took a more subjective perspective and thought about the strength of the relationship, what share of a customer business we had and our prospects for increasing that.
With this understanding of customer attractiveness and cost to serve we helped the client separate customers into Key Accounts and Others. A virtual, self-serve portal was created to service the long tail of Others, reducing cost and management time. Importantly, this also created capacity to handle a longer list of Others at lower prices.
We then created training materials for Key Account Managers to handle two different types of conversations: Those critical customers who would grow with the business to define tomorrow’s sales line, and those who were sizeable now but likely to decline over time. It was really important to keep this last group happy without sacrificing margin.
Outcome
Focusing the team on key accounts improved call numbers on these customers by almost 20%. Sales leads coming into the team were better qualified because Marketing could assess earlier on what category the Prospect might fall into. Finally, there was a double-digit increase in forecast accuracy because more time was being spent on the big revenue customers.
