What is Customer-Driven Business Performance?

The chart to the left provides the holistic view of understanding how to manage your business, with your customer at the core. At Winsper, we call this model Customer-Driven Business Performance. It established a simple framework yet the implications can have a profound effect on properly organizing sales, marketing, product development, finance and operations centered around your customers.

The overall benefits for senior executives are:

•Analyze customer profitability to drive increased shareholder value.
•Segment customers using Life Stage Models.
•Identifying the customer conversion.
•Understanding Net Present Value.
•Eliminate customers destroying company profitability.
•Measure Total Cost of Customer AcquisitionTM
•Reorienting customer value propositions to
increase customer satisfaction while reducing wasted costs.
•Focus company resources to measure, manage and optimize
your customer revenue opportunity.



It starts with having a complete understanding of knowing your best customer from the perspective of value, revenue, profitability and advocacy. The graph below outlines the process of customer centricity across all of the stages of the model.

Say NO to your prospect’s revenue

Well, a fairly dramatic statement, indeed. But not all customer revenue can have a positive effect on your company’s bottom line. Some clients, well, are downright unprofitable. The psychology of sales people, being internal optimists, is hope. Hope that they will give you more money to offset the massive acquisition costs; hope that they recommend you to another prospect; hope they become great references. The last time we checked, hope can’t clear a bank account. It is worth nothing, and having an unprofitable customer being supported by help desk, key account sales force, accounting, etc. is a more of a liability than you may think. Let’s walk through an example of a basic, new business prospect qualification scenario.

The fundamental evaluation of any new business opportunity, especially for a B2B direct sales model is the BANT model – Budget, Authority, Need and Timing. There a dozens of variations off this theme, from Sirius Decision to salesforce.com. But the fundamental model of BANT should come no surprise to any sales manager or for the guy in the trenches. Win on all 4 of these pistons, and the deal is sealed. Knowing how much time and effort it takes for a sales person to first get the suspect, then the prospect to ultimately reach the pinnacle of this scorecard can take dozens, if not hundreds, of man hours. Add it up. Let’s say there are a few staffers required to channel the suspect through the process, from in-house lead qualification to inside sales qualifiers who then pass it off the field sales representative. So, that’s three people all at various compensation schemes. Let’s do some simple math to illustrated a what if scenario (and by the way, this does not account for the marketing dollars spent to get the suspect to show up at the front stoop (you can read about Total Cost of Acquisition in another blog post):

Prospect A:

Step 1:
Lead Qualifier: 1 hour phone call, and 1 more minutes to send “more information” – these prospects usually are classified as “seemore”. They always want more information to help them justify their next move. Add 10 more minutes to put information into CRM or a marketing database. The Lead Qualifier notices the same prospect decided to join a recent webinar posting, download a demo and one white paper. Not much to do here because the in-house marketing database works so well, it automatically tracks the user’s behavior and adds information into the unique ID of the prospect.

Hourly cost, including benefits, direct costs: estimated $100 dollars

Step 2:
In-house sales rep: tries 6 times to get the prospect on the phone through a variety of means, writing emails and voicemails, sends a personal note, a timely article and finally gets to spend 1 hour doing a deeper dive Web Ex presentation. After 2 months of chasing the suspect, the in-house sales rep eventually marks the opportunity as Level 2 prospect.

Hourly cost, including benefits, direct costs: $400 dollars

Step 3:
Just a mere 3 more phases to go before they become a Level 5 prospect, when there is a contract issued and much anticipation for a purchase order. Whew, the boulder is finally moving uphill. So the appointment is made, the sales rep flys out and does the dog and pony. Works the room at and after the meeting, spends exorbitant amount of time building presentation decks, internal IT for proof of concept model, plus using internal finance and legal support to review T&Cs, so on and so on. Chalk this up as great sales day and let the bell ring.

Hourly cost, including benefits, direct costs: $5000 dollars
T&E cost: $600

Estimated Total Cost for Sales Process (not including marketing support): $6,100.

Year One Contract amount: $30,000.

Job well done, right? Well you don’t know yet. While one would immediately think the cost of sale is about 20% of the revenue and that may be a fair assessment at face value. But the more important questions is if this customer actually going to drive the proper profitability for your company long term.

How do you know they will be a likely profitable customer before you expend all this company? It is quite simple. Evaluate your existing base of customers, identify which ones impact the most profitability, get a 360 view of them, and overlay that with your prospecting database. Pursue only the prospects that the same archetype and profile of your best customer. Forget the rest. A tough pill to swallow in a down economy, but only the ones with strong intestinal fortitude can say no to revenue at their door step.

Your low hanging fruit may be rotten.

How do you know if the prospect you are chasing is worth the race? Is it the total revenue potential long-term? Is it the quick revenue burst to offset a big bogie number? Is that they may be a loss leader know but has the chance to be an elephant later? There are literally dozens of excuses to try and convert the sale. But there should only be one fundamental metric to use – customer profitability. The smarter question in the beginning is if this customer will make a positive impact on your bottom line? The mystery is how a company knows if they will be profitable or not while the prospect has yet to convert to a revenue generating customer. Unless one has a magic ball, it is almost impossible to know. Let’s face, it. This has been puzzling sales managers and executives for years (then again they get compensated on revenue and/or units sold, not whether they will be profitable or not). Demystifying the question: It answer is quite simple. Evaluate your existing base of customers, identify which ones positively impact the profitability, get a 360 view of them, and overlay that with your prospecting database. This is called predictability. And while it may not be 100% accurate all the time, it is most likely the smartest, most effective way to know the trend. If the prospect has the same archetype and profile of your best customer, then your fruit is probably healthy. If not, you run the risk of getting a bad apple. Why spend company resources to try and convert a customer that will adversely affect the bottom line? Now that would bite.

Does the answer sound simple? It is in theory, but in practice, most companies don’t strategies surrounding Customer Economics. A bit scary, indeed. Unless you have the proper customer data, getting to the answer could be challenging indeed or worse, impossible. Customer data usually sits right in your financial system – who, when, how much, and what they purchased. And if they continue to buy more and more, that information sits in there too. It doesn’t take a brain surgeon to start to build out a model that can start to track conversion, profitability, churn, attrition, value and a host of other segmentations. Customer Economics is currently one of the single most important measurements of success today. Points of view on how issues facing marketing people, how to get started, or the value of such from a shareholders perspective are starting to get the attention of senior executives. We suggest getting your best practices started today. You never know if the Board of Directors, or even the Government (yikes!) starts making this part of the compliance process.

Can customer information be the currency of business?

Any smart CEO will say they make informed decisions based on fact, past experience and counsel form his peers. But if information is the currency of business, CEOs have limited or no access to the some of the most strategic required – the economic profile of their customers. The weekly schedule is set, daily meeting agendas are agreed upon, travel plans are booked. Ahhh, everything is going swimming well with time management. The sales forecast is in, operations brief has been supplied, the board meeting presentation is complete. Boy you are on a roll. You lost some customers, you gained some customers. No biggie, “customers happen”. As long as the new customer revenue is at or above the old, you should be covered right? Wrong.

Not all customers provide the same level of profitability to your bottom line. Measured just by quantity of total number acquired, or by the variance of new revenue is a flawed model. Organizations today have little or no insight into the economic profile of each and every customer. Because they are not all created equal, at least in terms of the impact they have on your company’s profitability.

Let’s take a few examples to illustrate the situation:

Tom buys flowers 1 time a year, and pays $120. Tom’s wife, Mary buys flowers every month and pays $10 a month. Each go to the same store (or e-store). Which customer is more profitable?

What if Tom no longer bought from the store, but along comes a brand new customer, Suzie, who also spends $10 a month? Is the company better or worse without Tom and now with Suzie? From a CEO’s perspective he/she may look at the sales reports, and sees the company still has 2 customers. And after reviewing the finance report, you actually increased your revenue. But what he/she doesn’t see is unfortunately the company is losing money on these two customers. They have spent as much time getting Mary to show up and buy once a month, and because their CRM system can’t identify Tom’s economic profile as the more profitable customer, spend less time trying to up-sell him. The cost to acquire Mary’s business is far greater as she continually received emails, catalogues, special discounts, thus even reducing the profit margins more as the cost of sales and marketing are higher as they are centered on Mary. What if the store reached out to Tom during some key seasonal peak seasons or special events, say Mother’s Day, or Birthday. What if they determined that Tom only goes to this store at Valentines but shops at others for other occasions? Thus, Tom, being most profitable customer is most likely not you’re your best customer because is also the most likely to leave the brand. Why? He is being recruited by others, has the money and means to do so, and he has a frequency of 1, thus little or no loyalty to the brand. But it is up to you to make him your best customer because he has the propensity to spend more.

Suzie just adds issues to what most companies do not realize. 80% of a company’s unprofitable customers usually come from the bottom 20%, relative to their peers, thus she is just costing the company more money.

With Customer-Driven Performance Management, you can build the economic profile of each and every customer, thereby having your company understand where to apply your most precious resources. We suggest you ask your finance department if they are in fact about to give you the information that’s worth money.