Measure the Profitability of Customer Accounts, Not the Number

Organic customer growth drives long-term profitability.

So, why isn’t customer profitability as important to you as quarterly sales goals? This is where the customer commitment falls apart, because what’s actively asked for, measured and rewarded doesn’t always line up with what’s good for customers. The easily understood and well-defined quarterly sales goals win out and stay top-of-mind.

For example: a B2B company was counting the number of customer accounts but not the flow or the quality.

The sales team was led by an ex-fighter pilot who fired up the sales force to get as many customers as they could, as fast as they could. But they weren’t keeping track of the difference in the value of business each new customer would bring. To them, one unit was one unit, so customers had become widgets. Each customer carried the same weight on the tote board used to measure success. The sales team exceeded their goal for new customer accounts that year, but sales became a drag on profits, which actually declined. This is because they didn’t focus on the profitability of customer accounts, just the number of them. And no one actively identified, prioritized and eliminated issues driving profitable customers out the door.

Ask about the volume and value of your incoming customers as often as you ask about sales goals.

You may find that you are tracking incoming customers across a multitude of company areas – with conflicting definitions of what it means to be a new customer.

The part that’s not likely tracked is the quality of incoming customers. This is especially important as the market becomes more saturated and new, profitable customers are harder to come by.

Have you achieved alignment in how customers are classified inside your system?

Have you actively identified, prioritized and eliminated issues driving profitable customers out the door.

Read More – Guerilla Metrics: Managing Customers as Assets