Elements to Increase Your Company Value: Strategically: Part II
Proactive vs. Reactive Customer Service
This blog is a continuation of the series on How to increase your business value with strategic concepts:
- Strategic –Proactive vs. Reactive Customer Service
What is a reactive customer service program like? Typically it consists of a department that waits for a customer to call then action is taken to solve an issue or problem.
How much does it cost to obtain a new customer? The most popular answer the author receives from CEOs across the country is “A-Lot”. Large sums of money are spent to secure new customers but if we just have a reactive customer service program then we lose the opportunity to grow the business significantly.
What is the Pareto Principle?
The 80/20 Rule. This rule was developed back in the 1880s by an Italian/French man and it applies today. What are some examples of the 80/20 principle?
- 80% of your revenue comes from 20% of your customers
- 80% of your revenue comes from 20% of your product line
- 80% of your output comes from 20% of your employees
- 80% of your problems come from 20% of your customers
- 80% of your employee problems come from 20% of the employees
How can you use the 80/20 principle to PROACTIVELY increase your revenue by 10% – 200%?
First, you must find out who the top 20% of the customers are. Take your customer sales data for the last two or three years and download this data to an Excel Spreadsheet. Once it is downloaded sort from highest revenue to lowest. (You should also look at customer by margin.) Add a column for cumulative percent on the side of the revenue sort. Sum each row until you reach 80% of the total revenue. Now you know the top customers.
If you complete this analysis over several years you can also discover top customers revenue and margin trends. It might be a surprise that some customers that were in the top a few ago may not even be on the list. This is an opportunity to visit them and discover why they left and invite them to return.
Once the top 20% or “80/20 Customer Gold Program”TM customers are determined then a methodical program can be designed to build relationships with key people within the organization. What people’s titles would you want to build a relationship with? Chief Executive Officers (CXOs), purchasing agent, accounts payable, project director, sales department, etc. Now stratgically have a corresponding department person in your company build a relationship with them. How do you find out what these people like or enjoy? Meet or talk with them to get to know them better. This process will build a proactive vs. reactive customer relationship.
The benefits of this “80/20 Customer Gold Program”TM are significant:
- Synergistic Buys: Most customers only purchase about 5%-20% of the products or SKUs a company produces. When you build proactive relationships, the customer can be introduced to other products that may benefit them but they currently do not purchase. Thus synergistic buys are possible to grow the business.
- Hot Leads: Your top customers are aware of other companies that may need your products but they may have never been asked. As you meet with and grow the personal relationships, they will be willing to provide people they know that may use your products. Thus another way to grow the business.
- Increase the Pain of Change – Retention: With a reactive customer service, a typical customer will tolerate about a 10% rise in prices or drop in quality. But with a proactive relationship this level of pain tolerance goes up to about 40%. Thus you could have a 30% higher price before they would seek another vendor.
A methodic strategic development of a proactive customer service can yield large revenue growth from your existing customer base. The “80/20 Customer Gold ProgramTM” works. The author has used it many times to increase revenue performance by 110% to 300%.