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Return on Client

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Executive Summary.

  1. Latest research on measuring Return on Client (RoC).
  2. Why RoC is important in developing loyalty and trust.

Return on Client

Yes, it remains tough out there! Yes the downturn of 2008/9 is behind us and we are seeing growth, albeit, slow, but indicators remain positive, on the whole.. But we all need to grow revenue and profits. Marketing and sales teams are focused in the main on gaining these from new customers. But is this the right path to follow?

Chief Marketing Officer Council (CMO) Study

One particular piece of research from the CMO Council in the US shows a startling trend. Profitable clients are becoming fewer. Their study, based on 400 interviews in the B2B space, shows that 30% of a company's clients account for 120% of profits, 50% generate cash flow, but little or no profits and the remaining 20% cost a business profits. A whopping 70% of clients aren't profitable! This, as if any further proof was required, indicates quite clearly why focusing on existing clients, especially in B2B is so important.

Return_On_Client1

Four reasons to pursue this route.

  1. You are able to leverage existing relationships.
  2. You are able to establish which clients are the most profitable and which aren't.
  3. You know something about their business and industry.
  4. You have the opportunity of co-creating services and/or solutions with them, for them.

Measuring is Not Easy

Measuring the profitability of clients is not a simple matter. As this chart indicates, most companies aren't that good at it. In fact only about 30% are.

Return_On_Client2

Source Peppers and Rogers

If measuring client profitability is not possible to start with, maybe work off revenue and if possible, gross margins as a stepping stone. But different clients need to be treated differently hence they need to be segmented according to existing value and potential value over a period of time.

But one thing is certain, no business can create value without clients and different clients generate value at different rates. So an investment now in designing and applying metrics to establish your high potential value clients, will ensure that you maximise their value whilst also ensuring that you invest in the right clients in so far as building collaborative relationships are concerned.

Just like opposition coaches focus on curtailing high value (dangerous) players such as Villa, Kaka, Mueller and Messi and others to survive, so must business identify their potential high value (profitable) clients.

Building these collaborative relationships is critical for another reason. Again quoting from the CMO Council study, the chart below shows quite clearly what the repercussions could be if investments in collaborative relationships aren't pursued. These initiatives are the foundation to building relationships based on trust. The downside of not doing so is illustrated below.

Return_On_Client3

Source CMO Council 2010

Companies polled stated that if there was no trust in their vendor relationship, 62% would scale back the amount of business and 38% would terminate the relationship over time.

Andrew Clare is Managing Partner of reLiance a business to business relationship marketing practice. We focus on improving client profitability through developing, implementing and measuring sustainable, collaborative business to business relationships.  This e-mail address is being protected from spambots. You need JavaScript enabled to view it www.rassa.co.za www.linkedin.com/in/andrewclare

 

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email andrewc@rassa.co.za

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