Do they treat customers differently based on their value? Will you get a dear in headlights response? Before assigning sales and marketing resources to current customers or potential market segments you should calculate the following two metrics.
- Customer Acquisition Cost (CAC)
- Customer Lifetime Value (CLV)
Customer Acquisition Cost
Customer Acquisition Cost is measured as ratio of the: (Total Cost of Sales + Total Cost of Marketing + Miscellaneous Costs*)/(Annual Contract Value)
This cost will differ by market segment and should be compared to the Customer Lifetime Value to determine how to optimize your sales and marketing spend.
CLV is the net present value of the cash flows attributed to the relationship with a customer. The use of customer lifetime value as a marketing metric tends to place greater emphasis on customer service and long-term customer satisfaction, rather than on maximizing short-term sales.
Once you calculate CLV, assign marketing and sales resources accordingly. Low CLV prospects and customers may be served by Inside Sales or a less expensive resource. High CLV prospects and customers should be marketed to on a one-to-one basis. This focus will increase conversion rates for prospects and maximize penetration rates within current customers. Top tier customers should also have a Key Account Management program in place.
We see clients miss the mark by combining mid-tier and small customers into one oversized portfolio. Account Managers tend to be reactive to customer needs regardless of their size. They are overloaded with accounts with little potential, administrative tasks, and customer service responsibilities. Assigning them to 50-100 accounts just compounds this issue and makes it nearly impossible to effectively cultivate their portfolio. This leads to a lack of alignment between resources and CLV.
Additionally, there is a common misconception that a majority of demand generation and content marketing efforts should be focused on new business acquisition. The thought is that Account Managers are effectively managing opportunities within current customers. Although they may be aware of opportunities within their customers, they are almost never engaging the entire Buying Decision Team. What happens if the main contact leaves the organization? Are they reaching the correct levels of contacts within the organization? Are they marketing to customers based on where they are in the buyer’s journey? It is difficult for an Account Manager with an oversized portfolio and lack of resources to drive demand.
We know it is more profitable to cross-sell and upsell an existing customer than acquire a new one. Why not leverage these relationships and maximize the potential within your existing accounts?
To summarize, calculate CAC and CLV. Then align sales and marketing resources accordingly. Ask your team how they ensure proper resources are invested in their top customers as part of your Go to Market Strategy.
Review the Slideshare presentation below to learn more about Sales Force Sizing and Structure best practices.
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