CRM: the perfect tool to manage client value

Collaboration – 18 March 2014

The functionalities of CRM software are becoming more numerous as they follow the latest technologies. People in charge should therefore keep in mind the primary goal of a CRM, which is to build client equity, and thus increase the profitability of its customers.

To maximize the profitability of their clients, companies must implement a client value management process.

Client value

Client value is determined by the number associated with the client’s margin, of which the total cost is deducted over a period of business. This demonstrates the relevance of connecting the company’s CRM with its ERP (Enterprise Resources Planning) to access the client’s data, such as purchase volumes. On the other hand, it is clear that the identification of costs could be facilitated by the use of a good campaign module in a CRM solution, for example.

For reference, here is a mathematical formula, the result of the work of Robert Waland and Paul Cole, who provide a way to calculate client value:

VCi : client value
Vol : purchase volume
M : margin per unit of purchase after tax
D : costs related to development
R : costs related to retention
A : acquisition costs
d : % discount d = 1 / (1+COC)
COC = costs relative to invested capital

t = the longevity of the client (months or years)

Adjust costs based on client value

Once the client values are calculated, the company will then be able to categorize its clients according to their value.

A little story to help illustrate this!

Imagine a business providing internet services to companies (B2B obliges!) receiving two notices for a termination of contract. The first, an Alpha client, and the second, a Beta client. How will they handle these requests?

If the company is even slightly focused on its clients they will seek to know the reasons for the withdrawal, in addition to verifying that the terms of cancellation are met. An employee will be in charge of contacting both Alpha and Beta. Thanks to the company’s CRM, the employee with then have all the necessary information: date of accession, types of contracts and problems; to prepare his appeal and be able to better understand the reasons brought on by their representative.

If the reasons are financial, one of the commonly used tactics would be a promotional offer that could influence their choice. This offer to ensure the profitability of clients for the company should be established on the basis of their client value. This value could then be included in a calculated field of the CRM itself and they can themselves connect to the business’s ERP.

  • If Alpha is a client with a significant value, the service provider company should try to keep the client by presenting them with a more aggressive offer, while controlling its profitability.
  • If Beta is a customer with a lower value, the company would be better advised not to waste their efforts to restrain them. Some estimate that more than 30% of marketing and customer service costs are unnecessarily lost to these types of clients.

We can then imagine that on a larger scale, such an undertaking would carry out sums that could then be reinvested in the exploring of qualified leads!

To conclude, the management of client value comes in many situations and concerns all B2B companies. This management, which can only be achieved through a CRM solution, can increase the profitability of a client base, which profitability through the acquisition of new customers increases the value of existing customers and retention of profitable customers. Policy makers should be careful because it represents the greatest growth opportunity for the company.

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