The Tingley Advantage Blog

Customer Numbers You Need To Know

2012-05-10T17:20:33Z

Knowing your customers - their wants, needs and behaviours - is a sure way to strengthen any business. How can you do this? There are many pieces of customer information businesses can choose from that may be beneficial.

Customer acquisition costs - How much does is cost for you to gain a customer? An example calculation for this metric is: total cost of acquisition campaign / # new customers gained through that campaign. However, this can be tailored based on your methods of acquisition and the costs involved in them.

Retention rates - How long do customers stay with you? It's important to take into consideration customer churn here - if you start and end the year with 1,000 customers, that does not necessarily indicate your retention rate is 100%! (you may have lost half of the original customer set and had to replace them - generally a more costly enterprise than retaining them). Ensure that you are comparing the same customer set over time.

Customer value - How profitable are your customers? How much revenue do they generate? And, what's their long-term value? (There are many factors to consider in a life-time value calculation; however, at a basic level this calculation involves extrapolating a customer's current value over the expected or average customer lifespan).

Share of wallet - How much is your customer spending in your category? Now, how much of that are they spending with you vs. competitors in the space?

These metrics can be looked at on an individual level, by customer segment, and overall. Additionally, they can be trended over time to gain insight into the direction your business is taking.

In future posts, we'll delve into how to calculate these metrics and talk about some examples to help you understand their use.

Spotting Problems Early

2012-04-26T14:02:35Z

We've talked a lot about metrics - we've figured out which ones we have, which we need, and how many to add to our dashboard. We have information about our business - now how do we use it?

Our metrics portfolio should provide us with a snapshot of where we are at, and it should also give us the ability to spot trends. Spotting trends early is important so that we can build on our successes, and/or identify and deals with problems while they are still small.

Although each company must determine the most important trends for their business, there are a few that most businesses will want to be aware of - negative trends in these areas are red flags that problems may be arising. The most obvious of these are, of course, financial trends such as decreases in revenue or profit - a sure sign that something needs to be corrected. However, there are other trends we can look for which can help us nip problems in the bud - BEFORE they hit the balance sheet.

Losses in efficiency or productivity - Looking for trends in metrics such as cost to serve, resolution times, and design, building or shipping costs, can alert us to issues that may be sapping our business' profits.
Decreases in market share or against other market benchmarks - Your business is growing at a rate of 10% per year - seemingly a positive trend - but the market in growing at a rate of 15% per year. By looking at your business' trends in a larger context, you can seek out opportunities or advances in the industry you may have otherwise missed.
Changes in customer behavior - Loss of regular customers, notable changes in buying patterns, or decreases in customer satisfaction can alert us to problems that are sure to hit our bottom line sooner or later. Regularly tracking customer indicators such as our Net Promoter Score empower us to deal with customer issues before they have a chance to grow. We'll look at tracking customer trends in greater detail in future posts.

There are no crystal balls in the business world with which to see the future - but by leveraging the power of trends, we can increase our ability to predict and shape our business' future success.

How Many Metrics?

2012-04-12T14:22:52Z

In our last posts, we looked at key metrics, and discussed evaluating what the "right" metrics are for your unique business. The next question is - how many metrics do we need?

The answer - as with most things - will be different depending on our specific business reality. However, as a general rule, a metrics portfolio should contain somewhere in the range of five to about a dozen well-chosen metrics in order to be both effective AND manageable.

Why not more?

There are many reasons why more is not better when it comes to metrics, many of which we looked at before - too many can obfuscate the facts, be tricky and resource-draining to monitor and analyze regularly, confuse or turn off our audience, or perhaps worst of all, end up simply unconsidered and unused. Collecting and analyzing the data takes time, money and effort - all things no business wants to waste. By going overboard on metrics, we risk investing a lot for very little pay-off.

Why not fewer?

"Everything should be as simple as possible, but not simpler." - Albert Einstein

It's as true for business as it is for science - and there simply is no magic metric that will provide all the information we need in a single number. To be effective, a metrics portfolio needs to give us some sense of where we are and where we are going, and needs to provide enough depth that insight can be gleaned from information. To try to achieve this with only one or two metrics would be limiting, at best.

The number of metrics your business chooses to track and use will be based on a combination of your business intelligence needs, combined with the time and resources available for tracking and analysis. By aiming for a reasonable number - enough to be insightful, not so many to be overwhelming - you can create a metric portfolio that will be the right fit for your business.

Choosing the Right Metrics for Your Business

2012-03-29T14:10:54Z

In my last post, we reviewed some of the key metrics that are useful to track for most businesses. However, every business is ultimately unique, with its own set of goals to reach and challenges to contend with. Thus, the "right" metrics will be different for each business. How do you know which are right for you?

Start with your strategy: Measuring things that do not support your strategy will ultimately be unproductive. Start with your strategic goals, and ask yourself what you need to know to determine whether you are reaching them. An excellent question to consider: What piece(s) of business intelligence could change the way we do business? If you run a call centre, for example, a strategic goal might be to reduce cost to serve by 10%, and a corresponding metric might be "average time to resolution".

Take a metrics inventory: Once you've looked at metrics from a strategic standpoint, ask yourself the following three questions: What do we currently measure? What do these measures tell us about our business - what questions do they answer? What questions remain unanswered - what else do we need to know that our current measures don't tell us?

Some organizations will find that they do not have enough metrics; others may find themselves bogged down with more information than they could possibly need or use. Once you've taken an inventory of your business' metrics, you will be able to eliminate metrics which are not relevant to your strategy, and/or fill in the knowledge gaps by devising new metrics that address your unanswered questions.

Ask yourself, can we take action with this information?: Knowledge is power - but only if you can actually use it. Focus on those metrics which can lead to productive action rather than spending a lot of time on areas that are outside of your sphere of influence. Additionally, create context for your metrics (often by ensuring you can compare them, either to a prior period, plan, competitor or market) to make the numbers meaningful.

Factor in your audience: Different levels of the organization need different types of information. If you are addressing your call centre manager, providing high-level information such as "your cost to serve is 10% higher than the market" will not be as effective as something more specific such as "you need to reduce the number of transfers per call within your department". Similarly, providing your president with the details of call times within a department would be too granular, whereas providing him or her with comparative performance data between departments might be useful. The effectiveness of your metrics will in part be influenced by whose hands they are put into. Making sure each level of the organization has actionable information ensures everyone is empowered to contribute to the business' ultimate success (for more on this, please see my post on Balanced Scorecard).

Metrics are critical - but they should always be used as a tool rather than an end in themselves. Ultimately, each business needs to determine its course, and then create a set of actionable measures that will support it in reaching its goals.

Metrics Review

2012-03-01T15:00:16Z

Solid metrics enable you to understand and assess your business in an objective, fact-based manner, and as such are key to success. The list of available metrics to track is seemingly as endless as the business questions you might have - and can be overwhelming. However, depending on your particular business, there are usually a handful of key metrics that can enable you to assess its health at a given point in time.

The following list in certainly not exhaustive - but it provides a quick review of the main measurements that should be reviewed regularly for most businesses:

# of Customers/Clients - What's your customer count? This metric provides a simple indicator of growth or decline in your customer base and thus the health of your business
Sales per Customer/Client - How much are your customers buying? This metric enables you to begin to understand your most valuable customers.
Customer Profitability - See my previous post for more details on this critical metric and how to use it.
% of Repeat Customers - It can be significantly easier and less costly to retain a customer rather than to win one. What percentage of your customers? Based on this metric, you may choose to look further into why customers are - or are not - returning.
Average Sales/Transaction (or, per Project) - Are you maximizing each transaction? This can be another way to efficiently grow your business. Tracking this metric may lead to insights into opportunities for cross-selling , upselling, or bundling your services.

By tracking these metrics on a regular basis, you can deepen your understanding of what's driving your business' success and determine any trends, either positive or negative, that can be addressed to improve your business' overall performance.

Additionally, at any point in time, many of these metrics provide a useful basis for customer segmentation, enabling you to differentiate the way you treat your customers so that you investing in them in ways that provide a suitable return on your investment.

What business question, if answered, do you think would change the way you do business?

Using Deciles to Measure and Manage Your Customers

2012-03-01T13:53:51Z

Here is another excellent tool to add to your measurement toolkit - the decile analysis.

Deciles are created when one group - of, for example, customers, dollars, or any other unit - is divided into ten equal sub-groups.

Recall the Pareto Principal, or 80/20 rule as it's more commonly called. A decile analysis of our customer base can show us how that rule applies to our business - which customers are leading the pack, and which are at the bottom of the heap.

Here is an example of how to create a simple decile analysis to determine the segment(s) of customers who are driving your profits. Simply:

Rank your customers according to the profits they drove for your business.
Divide the group into ten equal segments.
Calculate the percentage of total profit for each segment.

In the example worksheet below, we can see that the top 20% of the customers are driving 77% of the profits, while the bottom 20% are driving less than 2% of the profits. Same number of customers - significantly different contribution to the business.

Once you've mastered the concept of decile analysis, you can apply it in different ways:

Analyze your customer base by other variables - revenue generation, campaign responsiveness, frequency of purchase, or any variable which can be numerically ranked.

Perform analysis on units other than customers; for example, product lines, retail locations or corporate branches, territories, marketing tactics, etc.

Cross-reference other variables against the decile analysis - for example, are the top decile profit-generators the same customers as are in the top decile for frequency?

Decile analysis provides a snapshot of past performance and can be used to track trends over time. For example, your top decile of profitable customers have contributed the most profit to date - how does that compare to three months from now? Six months? Is that top decile growing, or are their spending patterns different over time? By using decile analysis this way, you are better-equipped to understand your customers' value to your business.

Who are your profitable customers?

2012-02-16T14:57:14Z

As businesspeople, we know the importance of customers, and we aim to make them as happy as we can. Many of us have been conditioned with a "customer is always right" mentality.

However, it's a truth that bears repeating: not all customers are created equal. It's not enough to know who your customers are and what they want. It's also key to know which are generating the most value for your business.

There are many benefits to understanding who your most profitable customers are:

You can enhance your targeting.

You can reward those customers that drive the most value for your business.

Most fundamentally - you can increase profits.

Think of it this way:

If you want to maximize your return on marketing investment, you look at which promotions are working the best, and then you shift your marketing investment dollars from the poorer performing programs to the high-performing ones.

It's the same with customers: if you want to maximize your return on customer investment, you need to understand which customers are adding the most value, and invest in those customers rather than the ones which are not delivering benefit to your business.

Looking at both sides in combination can give you a clearer view of what's happening in the business. For example, you might have a very successful marketing program, but if it's targeted at low-value customers, it might not drive profitability. Like two pieces of a puzzle, you need to understand both the marketing return AND the customer profitability to see the whole picture.

Once you know who your most profitable customers are, you can confidently use rewards, incentives and other marketing initiatives to target those customers who truly help you grow your business.

For tips and tools to determine your most profitable customers, visit my previous post, Finding Your Highest Value Customers.

Measuring Your 2011 Performance

2012-01-26T19:40:05Z

The start of a new year is an excellent time to assess our prior year's performance, so that we can set the appropriate course for the year ahead. Success is built on a variety of factors; therefore, it makes sense to measure the business in a variety of ways (for one excellent tool, see my post on Balanced Scorecard).

A significant portion of our evaluation will be financial; however, looking other areas will provide context and insight into the reasons for our financial results, as well as opportunities for improvement. We will look at these factors overall and additionally may want to measure individual areas of the business, e.g. marketing, product lines, etc.

Financial: Take a look at the final numbers on the balance sheet. What were our revenues, profits, and/or financial growth? How did we fare against any targets we had set? (This is also an excellent opportunity to pull together any financial records that will be required for upcoming tax purposes.) Finally, look at the return on business investments for the prior year.
Customer: Did we grow our base? Were our customers satisfied and are they coming back? Where did we deliver to our customers, and where did you fail to deliver? This will uncover opportunities for the year ahead in addition to providing context for financial results.
Process: Did we improve efficiency or effectiveness, or are there areas where we have lost efficiency or effectiveness? Did we meet any goals we had set in terms of quality control, delivery times, or other process-based improvements? Have our processes kept pace with changes in the business (e.g. growth, new products, changes in strategy)
Innovation: Did we move the business forward in terms of new products or services? Did we meet any goals we had set around education or skills development? Have we kept pace with changes in the industry over the past year, or are their gaps that need to be addressed going forward?

To make the assessment as concrete as possible, consider creating a yardstick to measure success against. Measure business performance on a scale of 1 to 5, with 1 being "We did not achieve that goal" and 5 being "We exceeded that goal". This is a simple but objective way to determine how well we did at achieving our goals.

Ideally, we measure our 2011 performance against goals set at the beginning of the year; however, even if we did not have defined goals, we can use a similar yardstick to measure performance against anticipated results (although this is not as objective a measure, it is still a step in the right direction. Then, we can set goals based on our current position, for the year ahead.

In my next post, we'll look at how to set up a measurement focused year.

New Year's Resolutions for your Business

2012-01-05T15:16:14Z

Happy New Year from the Tingley Advantage!

Do you have any New Year's resolutions? What about for your business? Here are six resolutions to consider making for 2012:

Get to know your customers better.
Make the most of your business' social media strategy.
Implement a Balanced Scorecard to ensure every level of your organization supports your strategic goals.
Get a handle on your business processes, so you can make them better.
Find new ways to tell your company's success stories.
Measure, measure, measure!

Whatever your resolutions may be, wishing you and your business all the best for a successful 2012!

Measurement Basics - Testing and Control

2011-12-22T16:17:34Z

Regular readers of my blog will know that I am passionate about measurement as a critical component of managing and maximizing your marketing efforts. A solid measurement strategy ensures that you KNOW what works - rather than guessing. And a solid measurement strategy will generally incorporate the principles of testing and control.

Testing is a process whereby we create an objective for our campaign or initiative and then measure whether the objective is being reached based on the initiative's success against a control group. Testing enables us to confidently answer questions such as:

Is our initiative or program working? Is it worth the investment we are making in it?
Could it be working better than it is? Or could a different approach be more effective?
What specifically is driving its success or failure?

How do you answer these questions? By implementing a continuous process of defining a question, creating a test, measuring the results, learning from the results, and then refining your initiative (including a new test).

Let's look at a simple example:

A translation company is considering mailing a follow-up package to prospects who contact their firm for a quote. The goal of the package is to convert prospects into customers. The package will be somewhat costly and time-consuming to create and mail, and the firm wants to be sure their investment will pay off.

Question: Is our initiative or program working?

Test: A random sample of prospects are excluded from the next mailing. The conversion rate of this group will be compared to the conversion rate of the contacted group.

Measurement: The conversion rate of the contacted group is higher than that of the excluded group.

Learning: The return of the marketing investment is sufficient to justify its continuation.

Refined Initiative: The welcome package is mailed to all prospects.

Having completed this test, the translation firm should also refine their test variables with each mailing, so that they can continuously improve their initiative. Examples of tests to consider could include:

A lower cost package versus the current high-cost one
An e-mail versus a mailed package
The timing of the mailing (sooner vs. later)
One customer segment's response versus another's

Each test will either reveal a more effective (in terms of cost, effort, etc.) way of executing initiative, or will serve to objectively prove the current initiative's effectiveness.

Net Promoter

2011-12-02T01:39:02Z

Most of us intuitively know that customer satisfaction and loyalty are important. We know that a happy customer is more likely to buy from us again - or tell a friend about us - than an unhappy one. However, it's not always easy to measure and manage this concept in practice, and this is where business tools can help. One such tool I've recently re-discovered is the Net Promoter score.

The Net Promoter concept asks the question "How likely is it that you would recommend our company to a friend or colleague?", and breaks out customer responses (which are given on a scale of zero to ten, zero meaning they would not recommend you) into three groups:

Promoters (9 and 10) are those customers who are loyal to you and will recommend you to friends.
Passives (7 and 8) are those customers who are satisfied but neutral to your company - a competitor can easily scoop up these customers.
Detractors (0 - 6) are those customers who are unhappy with your organization and will say so - they can impact you through negative word-of-mouth.

Your Net Promoter score is simply the percentage of your customers who are Promoters, minus the percentage of your customers who are Detractors.

While customer satisfaction and loyalty have always been important, they are arguably more so now than ever before. Whereas in the past, a loyal (or angry) customer might discuss your product or service with a few colleagues, friends, or neighbours, now, with social media, that same customer might tweet or post about you to hundreds of people. The impact - for better or for worse - has the potential to be significant to your organization.

The strength of a concept such as the Net Promoter score is its simplicity - any employee can understand the concept of trying to please customers so that they will want to promote the company rather than be passive or detract from it. It's tangible and meaningful on the front line as well as in the management offices.

Of course, knowing your Net Promoter score is just the beginning - it's what you do with that knowledge that will ultimately increase your success. Knowing your score gives you a starting point to discover where you are at and what you need to do to move your customers towards becoming Promoters.

To learn more about Net Promoter, you can visit their website.

The Balanced Scorecard in Practice

2011-11-17T14:43:00Z

In the last post, we looked at what a Balanced Scorecard (BSC) is, who uses it, and why. In this post, we'll take a look at the implementation of a BSC. Although the specifics of an implementation will differ between a large corporation (which, for example, might need software to support its BSC initiative) and a small business (which might rely on a short documented list), the following high-level steps will be a part of any implementation:

Define the company's strategy - As always, if you are not clear on where you are trying to go, it's impossible to create a useful map to help you get there. Make sure you are clear on your strategy so you can break down how to achieve it.
Define objectives which support your company's strategy - Objectives should be measurable and should reflect the four areas of the Balanced Scorecard - Financial, Customer, Process, and Learning and Development.
Define your measures - Figure out in specific terms how you will know whether you've met your objectives.
Define and pursue your initiatives - Now that you know what you are trying to do and how success will be measured, define and pursue activities to drive those objectives.
Evaluate your success - Measure what you've achieved against your objectives and measurements, and refine the process based on what you learn.

One of the most powerful things about the Balanced Scorecard is that it can be cascaded from the very top on the organization right down to the front lines, ensuring that each and every company resource is aligned behind a clear and common set of objectives. Here is a simplified example demonstrating how objectives can be broken down and made relevant to every level of the organization:

In this example, we can see that, although there are some differences in the specifics of each level's goals, they are ultimately linked to one another and all serve to further the organization's strategic goals.

The Balanced Scorecard is a powerful management tool that can be scaled to benefit businesses of all sizes. It ensures you are making the most of your resources by aligning efforts to support your ultimate goals.

What is a Balanced Scorecard?

2011-11-08T20:12:34Z

The Balanced Scorecard is a management tool that translates a company's strategy into specific, actionable and measurable goals and activities. By cascading these goals and activities down through the organization, level by level to the individual employee, it ensures that each and every individual effort is driving the company's strategic goals forward.

The scorecard is called "balanced" because it defines goals in four different areas: financial, customer, process, and learning and development (including innovation and employee development). This ensures that financial and non-financial goals are balanced against each other, leading to stronger success for the company.

Any business can benefit from some version of a scorecard (the complexity of which will vary depending on the size and diversity of the organization). Bain reports that the Balanced Scorecard was one of the top ten management tools used in 2010.

What are the advantages of using a Balanced Scorecard?

Business activities are linked to the company's strategy; extraneous activities can be de-emphasized or eliminated.

Success is measured in a balanced way by identifying and providing equal emphasis on financial and non-financial drivers.

Each and every member of the organization understands how and why their contribution matters to the company.

Employees are rewarded for activities that really drive the company's success

In a future post, we will take a more detailed look at the implementation of a Balanced Scorecard.

The Importance of Metrics

2011-10-07T14:36:05Z

No matter how cutting-edge your business might be, business basics such as well-designed metrics will always be fundamental to your success. Lara Veltkamp of Watershed Marketing shares her thoughts in today's guest blog:

I recently had the opportunity to attend an all-day, multi-speaker conference in York Region called "Business Innovation for Changing Times." The event was geared toward small and micro businesses, highlighting Arlene Dickinson as keynote. Likely, she was the reason many of the 200+ folks attended. She was, most definitely, worth hearing. Earlier in the day, though, and long before her appearance, I sat in the audience, mind occasionally wandering (between speakers of course!) to this guest blog article, and what I might write to engage you - Katie's tribe.

The decision was made for me as speaker after speaker took the stage. While the common theme was innovation, not surprisingly the common support for each presentation was in the metrics.

For example, during his presentation, Ian Proudfoot (V.P. & Regional Publisher, York Region, for MetrolandMedia) had statistic after statistic in support of the company's marketshare, audience support, and rationale for the organization's recent name change from Metroland Publishing to MetrolandMedia.

Douglas Heintzman, Director of Strategy for IBM's Collaboration Solutions, presented a highly informative piece, "Lessons learned from an early adopter," where Collecting Metrics was highlighted in virtually every area of social business success he discussed.

Lisa Kember, Regional Development Director - Southern Ontario, for Constant Contact, spoke on the difference in customer engagement through Paid Media versus Owned Media versus Earned Media, and cited a number of metrics to monitor when differentiating between these levels.

As you know if you've been following Katie's blog for any length of time, metrics is not restricted to operations and process management; it's imperative for other areas of business, especially for every marketing campaign you initiate. The basics for any business, as I'm sure Katie would tell you, include:

Monitor your website and/or web page visitors by date, regional location, browser type, referring source and tied-in marketing initiatives (such as an advertised special offer or a specific blog article launch that point back to a specific web page). You'll see a trend in use, and you'll have a better idea of how and why people are visiting your site. Tools like Google Analytics - when set up properly and reviewed often - are very good for collecting and presenting the data you need, and it's a free tool.
Track engagement through your social media tools (Blog, Twitter, LinkedIn, Facebook, YouTube, etc.). You need only simple metrics to start - baseline and then trend: readers, followers, connections, profile views, likes, subscribers, etc. When you have a handle on these metrics, you can begin to go deeper on engagement. Ask Katie about her Tingley Solutions product for small businesses that will help you track what you need to track.
Calculate your average revenue per customer (total revenue $/total # clients), you'll know what each customer is worth to you, and if you measure further, you'll be able to identify how many prospects you need to gain one customer. This is something you easily can do by reviewing your revenue numbers and client list. Going deeper may require some support from your marketing and sales team, and your accounting software.

Without these numbers, your marketing can be a waste of time and money... because you just don't know for sure. However, if you want to grow your business, you need to know how and why people are engaging with you, and what they value from you -- so you can give them more of what they want and need.

And that's what being in business is all about, isn't it?

Lara Veltkamp delivers practical, achievable marketing strategies, planning and initiatives, most recently as principle of her own company, Watershed Marketing Group Inc. Lara founded Watershed in 1998 after a successful career leading marketing and sales strategies inside both large and privately-held companies. Under her leadership, Watershed continues to grow, with over 100 clients and 1,000 plus attendees at marketing and business workshops delivered to clients across Ontario.

Social Media ROI

2011-09-22T13:44:44Z

Determining the ROI of your social media efforts can feel like a challenge. Today's guest blogger, Andrew Jenkins of Volterra Consulting discusses how to tackle it.

Social Media ROI is not so hard to measure if you know what you are measuring. When the subject of social media comes up in conversation, so does the question of ROI. Often companies want to see a business case to justify incorporating social media, but one of the more snarky responses might be, "What is the business case for your phone or email?" I am not going to go there -- but I will offer a more constructive explanation instead.I think a business case can be made for social media and that ROI can be proven.

The key is to design it into your strategy from the outset. What I mean by that is to create a situation where you can determine the direct correlation between an activity within social media and a positive result regarding your company like increased website visits, customer inquiries, newsletter registrations, or online transactions. Whether it is a direct mail piece, a microsite, your website, a tweet, a Facebook post, or a blog post, you can distribute content or links that will generate actions with associated analytics. You can test different content or links with different channels to see which platforms or channels produce the best results and refer the most traffic. Google Analytics, Bit.ly, and Facebook Insights are just a few examples of tools that provide those analytics and insights necessary for you to determine ROI.To be fair, determining the ROI requires a certain level of understanding of social media and how content gets shared. Once you understand how social media works, you will feel more confident and comfortable about how to measure ROI.

Social media is meant to complement your existing marketing activities and objectives rather than operate independently. Assuming you properly measure the ROI of your current marketing efforts, it will not be a stretch for you to determine the ROI of your social media efforts.

Andrew Jenkins is principal and founder of Volterra Consulting, a management consultancy helping clients with strategy and strategic planning. Areas of focus include social media, mobile/wireless, e-business, and Internet technologies.