No customer-centricity programme deserves to exist without a business case. This doesn’t need to be extensive or be forensics proof. But it does need be present, if only as an estimate made on the back of an envelope. After all, any company initiative that is disconnected from the fiscal realities of business is impossible to sustain.
But all too often, the profit case that is presented is limited to the profits that are most obvious.
This is a pity. On the one hand an insufficiently strong (i.e. incomplete) business case can mean the premature end of valuable customer initiatives. But more importantly, by not estimating the full benefit of a customer-centric approach to the business, new profitable opportunities may get lost.
So, to make sure that in the weekly carrousel called work I don’t fall into the same trap, I use the following checklist of the ways I have seen a customer-centric approach drive sales and profit in terms recognised by traditional/financial KPI’s:
#1 Higher customer profitability
It’s still the bedrock for most customer business cases I see. The logic goes as follows:
(a) Customer-centricity leads to more happy customers.
(b) These happy customers buy more, more often, for longer periods of time than unhappy ones (which are often loss leading).
(c) By also considering elements like lower cost to service, word-of-mouth, more flexible negotiations etc., the differential quickly runs into the triple digits.
(d) As long as creating more happy customers costs less than this financial bonus, you’re in the money. If not, it’s back to the drawing boards.
While these numbers are never an exact science, they almost always do the trick with a bit of data-effort and a pragmatic mindset.
#2 Better sales forecasts
Any finance department will tell you that accurate (sales) forecasting is crucial for the financial health of the company. But it is also notoriously difficult. Individual bias, commercial pressure, market variables and political agenda’s more than once lead to the conclusion let’s just do 5% more next year.
However, every CFO could benefit from a more customer-centric forecasting mechanism (vs. spreadsheet-centric). Especially in B2B environments, continuously linking the voice of the customer and key customer performance indicators to the forecasting mechanism can provide great insights into the customer’s future intent on purchase, negotiation, churn etc. And better forecasts lead to better use of cash.
#3 Higher return-on-capital
At the end of the day, companies live off customer money. As such, every company investment or expense should aim to maximise the amounts of money customers bring to the table. But outside the customer facing areas, investment cases rarely consider this factor. They look at internal, competitive or best practice considerations.
However, customer-centric investment cases require everyone in the business to clearly formulate and estimate how their proposed initiatives will translate into value which customers are willing to pay for. This additional perspective makes sure that customer money producing business cases rank higher in the hit parade and that any capital deployed gets the highest possible return.
#4 Higher return-on-innovation
Depending on the research you look and your definition of success -which in corporate land can flexible- between 50% and 95% of innovations fail when going to market. The main reason for this failure is their inability to resonate with the current and future customer needs.
This failure rate can be significantly reduced by making sure that the business only puts out propositions that customers actually want to buy. Whether this is done through observation, interaction, co-creation or other means is up to each company’s taste. Still, by making sure that every engineer, product developer, designer or creator puts the customer at the heart of all their innovation efforts, the return-on-innovation will go up.
#5 Reduction of operating costs
Some people don’t like to hear it, but customer-centricity is a great way to trim fat out of the business. After all, being customer-centric doesn’t mean doing more for the customer. It means: doing the things customers care about.
But with this latter definition, the inverse is also true. Once you do what customers care about, you can stop doing all the rest. Having a good understanding of what customers desire, makes it possible to challenge every process, task, department or asset of the business that doesn’t contribute to deliver against this requirement. All these savings go straight to the bottom line (or the customer investment fund 🙂
#6 More accurate valuation of M&A transactions
When buying a company, the due diligence process largely focuses on current and past financials, existing order books, installed base estimates, etc. But few prospective buyers really dig into customer sentiments and unaddressed customer insights. Meanwhile, these indicators can have a tremendous impact on the future value appreciation of the acquisition target.
After all, given the same balance sheet and order book, would you pay the same price for a company of which 90% of customers were detractors than for a company where 90% of customers are promoters? Or for a company which was solid but seemed to miss out on a deeper customer insight which could double the sales?
#7 A more efficient payroll
There is ever growing proof that if your employees are true promoters of your business, your customers will be positively influenced as well. While I haven’t been able to ever run the numbers on this, I believe the opposite to be true as well: Employees who are continuously confronted with happy clients will generally feel better about their job than those that keep hearing how hated they are (even at the family BBQ).
Especially when combined with higher customer empathy levels in customer-centric companies, this differential should have a noticeable effect on employee churn, absenteeism, productivity, engagement and therefore overall payroll cost.
#8 Higher growth rates than the competition
While the battle of the customer experience metrics rages between Net Promoter, Customer Effort, Brand Advocacy, WoMI and half a dozen others, all seem to agree on one fact: If you outrun your competition on the customer experience you deliver for a similar price-point, this is a good indicator for future growth.
While I’m not 100% convinced it’s a single-variable game, the message is clear: being better at connecting to your customers and than your competitors helps rather than hinders your growth.
#9 Better stock market multiples
Stock market value is created – largely – by two factors: the performance of the business and the multiple that investors are willing to pay for it in the share price. As especially this second factor is driven by analyst and investor appreciation, it can be influenced. For instance, by making a case that your company has more loyal and higher valuable customers than those of your competitors.
This will increase your comparative value and while forward looking statements remain tricky, it SHOULD enable you to positively influence your P/E ratios. Though it’s probably wise to only play this card if you are sure you’ll be able to deliver against this for more than one quarter. Otherwise the effect may be quite the inverse 🙂
#10 A strategic future
Finally, there is the realisation that without a customer-centric approach, there may be no profit left in the long run. With all the digital, technological and scientific changes accelerating around us, complete industries are about to be reshaped. The common denominator in all these changes will be increased personalisation and the management of individual customers.
In other words, yesterday’s production-centric world where “you consume what I produce” will transform into a customer-centric reality where “you produce what I consume”. This is still a few years away, but considering the 5-10 years amortisation periods on retail formats, production facilities, call centres, etc. it may pay to get ahead of the customer-centric curve.
What do you think?
These were the main ones on my checklist, in which I have a few more written in pencil which consider better account management, a more efficient IT infrastructure, sharper risk management, lower litigation ratios, reduced liability insurance fees, better bank credit conditions, etcetera.
But I’m sure I also missed a few, so if you have suggestions or improvements, please use the comment field below!
If you would like to know more about the topic of customer-centricity: get in touch, ask my colleagues at Futurelab, check out my book “So You Want To Be Customer-Centric?” or join the LinkedIn group by the same name.