Business Modeling

30 06 2009

We spend a tremendous amount of resources on preparing financial models for the company.  Which is absolutely necessary, but we also need to model the operations as well.  For example, if we model the customer lifecycle we can begin to better understand each of the subprocesses within.

This leads to many different insights into the business:

  • Critical transition points within the process – target higher impact performance areas
  • Segment the customer by value – thus better alignment of product and services
  • Better communication of value to stakeholders
  • Enhanced sales negotiation

If we can build the formula around each of the key business processes, then we are providing more tools for the organization to use to focus resources and priorities.





Focus on Operational Performance Management

26 05 2009

When was the last time you discussed how your customers were performing?  Do you have a formula to determine their lifetime revenue potential?  And what it costs to serve them?  Does this determine how you segment and market to your customers?  Do your sales people use this value as a tool in the negotiation of price?

Basically how do you manage customer performance?

One of my clients was a credit card processing shop and what we found was that they were spending $4 for every $1 they were collecting from bad debts.  While it was not the whole story, it was evident that we needed to better understand the customer lifecycle.  This client did have specific marketing programs and processes, but they had not been challenged in quite some time and were common industry practices.  

What we find out when we look at commonly held beliefs is that their assumptions are no longer (if they ever were) valid.  We get into a groove of momentum that we find difficult to change our beliefs and behaviors.  We also lack a mechanism and the focus to understand which processes to look at.  One of the most critical to me is around customer performance.  

Ask yourself if you know which customers are driving profits and which are destroying them?  If not, this might be the best place to start thinking about improving insight and process improvement.





Customer Lifecycle Value

1 05 2009

Depending upon on how well your know your business, a great discussion to have somewhat regularily is whether or not the customer lifecycle value is increasing or decreasing.  To achieve this we need to know a few things…

  • How much has the customer purchased from us?
  • How long are they likely to stay with us?
  • What does it cost us to serve them?

None of these are necessarily easy questions to answer, but that does not mean we should not talk about these items. Worst case, you should at least be looking at the average revenue and cost per client and see how those are changing. They are probably pretty good indicators of lifecycle value.  If we look at the trends of our revenues, costs (COGS & SGA), and profits per customer this should certainly indicate if we are doing better or worse.

While most of us do this to some degree, we probably also throw in a great deal many more variables and business rules and end up discussing various concepts. What about once a month or once a quarter getting all the department heads together and discuss progress on only these items.