Dig under the big number

Editor’s note: Elizabeth (B.J.) Kyzr-Sheeley is executive vice president, people, products, and strategy, at Walker Information, Indianapolis.

For many people, old habits die hard. And because businesses are managed by people, it’s inherently easier for companies to hang on to the familiar, though sometimes less effective, practices and ways of thinking. It’s an attitude of “that’s the way we’ve always done it” or “we’ve always looked at it this way.” Measuring business success is no different.

Tradition is comfortable but not necessarily right

The traditional practice of using market share, sales and revenue numbers not only continues to dominate the way we assess success, but it continues to be the primary and sometimes only way for judging success. This can especially be the case when the CEO focuses so much attention on those traditional measures of success and failure that even a slight dip in results generates demands for more numbers to justify, validate and cross-validate the first numbers. It can set the organization into a tailspin as it attempts to find answers within a veritable sea of numbers. But in cases like this, the old patterns of quantifying success are at least comfortable. These are practices believed to “work.” But do they?

Relationships with customers hold the key

The growing numbers who advocate customer relationship building as the key to success would tell you that the bottom line of an organization says more about where you’ve been than where you’re going. This is best played out in the business-to-business world where managing individual accounts allows for the development of relationships and where one-on-one interactions and servicing models are already part of the defined relationship. Loyalty, as built through healthy relationships with customers, should be the primary focus of the organization and should be one of the key indicators sought out by business leaders each month, if not weekly or even daily.

Even Wall Street is turning to the health of the customer relationship as an important part of assessing value and worth. Surely, the bottom line counts with the stockholder. It counts plenty as consideration is given to investments. But when both the financial numbers are there along with indicators of loyalty and healthy relationships with customers, then you have a real winner…that is, a winning combination that has laid the groundwork not only for today but for the future as well. For the CEO of a business-to-business company, the real answers lie not in the numbers, but in the relationships that in turn will drive the numbers.

A better way

So what should organizations do to evaluate success? Very simply, manage those things that can be managed. If company financials are outcomes of where you’ve been, then you must manage where you’re going. For the business-to-business world, the answer is fairly straightforward: focus on your relationships with your customers, especially your key customers, one at a time.

With the focus now on the individual account, how you manage and assess your customer relationships must also be at the account level. What this means for a business-to-business company that’s used to managing by the monthly or quarterly numbers is a change in habit. And here are a few ways to help companies shift their view of the business.

Use “share of wallet” to measure success

The monthly or quarterly numbers usually highlight how a company is doing across all its business. But by moving to an individual account perspective, “share of wallet” becomes a more effective measure. Share of wallet means knowing how to get the most from each of the customers you have. It means cultivating mutually beneficial relationships where customers want to work with you. It means getting your customer to spend all their available dollars with you and little with the competition. And it can also mean building relationships where your customers want to work exclusively with you, to the exclusion of others.

In business-to-business customer relationships, it is often a benefit for the customer if they can move their business to just one provider. Who wants the extra effort and time of working with different providers who have different processes and requirements? The problem is, too often customers feel they may be taken advantage of by using just one provider. Or, they believe that having multiple suppliers is the only way to maintain acceptable levels of product and service quality at appropriate prices. A common view is that vendors keep each other honest.

That’s an unfortunate business scenario. How great it would be to develop trusting relationships that ultimately capture more and more of your customer’s business “wallet”? And, yes, to eventually capture it all and be sole provider? It’s not an overnight proposition. Maintaining percentage of wallet targets for every customer becomes an important business metric that replaces simply viewing revenue and sales numbers, even at the individual account level. An increasing (or decreasing) percentage of your customers’ business is a far more descriptive measure of the relationship. And yes, many of your customers will agree to provide share information if they believe your intent is on developing a strong relationship.

Encourage ongoing communication with customers

When there is a culture of “every account is important,” the need for information about each account becomes a strong part of how business is managed. Open communication with your customers about the relationship - all aspects of it - is imperative. Ongoing communication will tell you what’s important, what’s not, how you’re doing, and give you perspectives on the competition. Remember, not all your customers will be working solely with you. They have important information to provide about your competitor’s performance. Your customer also can provide insights to help product development efforts - identifying new needs for new product extensions, new ways to use the current products, or new services to make current products more effective.

Relationships built on intimate knowledge of customers’ needs, usage, and buying patterns offer a solid basis from which to predict future needs and business volume. It costs less to keep a current customer than it does to win a new one. And wouldn’t you rather cultivate business from this known quantity rather than take a gamble with an unknown prospect? It’s to your benefit to know your customer.

Be selective about customers

While the focus so far has been on individual accounts and healthy relationship-building, it does not mean every account should be your customer. You don’t want or need just any customer, even if this customer will increase your numbers and even if they spend a large share of their wallet with your company. Signing up a customer just to have one more will not be worth it if it costs you more to service them than what you see in return.

Every company has to accept that there are customers who will never be satisfied by what you provide simply because you can’t provide what they need. Can you really afford to cultivate a relationship with an account that is there for the wrong reasons, especially when providing you little to no profit or, worse yet, costing you to have them? Viewing accounts individually will help distinguish the good from the bad accounts. Having descriptive information for each account will allow you to make this evaluation. Consider information such as: cost to service, business volume, cross-product sales, referrals made for new business, share of wallet, and loyalty - all things to consider as you evaluate each individual account. Perhaps a good strategy for your company is to lose your worst customers to your competitor.

It’s your future

Breaking old habits and viewing your business from a different perspective may not feel comfortable right away. It’s hard to dig under the one total number and see what’s beneath it. But it’s the preferred approach that will give businesses more control over where they’re going.