It’s a big day for the salesman when he gets a good order – I can understand the high as in most of the roles sales was an inevitable part of my career. During my initial front-end B2B sales days, the customer who helped me meet my target was the most valuable and it changed from quarter to quarter.
While getting an order is a reason to rejoice, but it is very important to know how valuable is the customer. This assessment is not core part of the KRA’s of the salesman as his job is to sell and meet his quotas but the key stakeholders/management of the business entity should draw out the metrics to grade the customer. B2B Sales is not a run rate business, every customer matters and the gradation will help in determining the values a business entity must assign to each customer and classify most valuable ones.
When seen in isolation, no single metric is enough to filter most valuable B2B Sales. The value assignment varies from business to business and there is no single yardstick. Therefore it’s important to understand and look at each important Metrics and define your own gradation system.
Some of the metrics to filter out the most valuable customers are as below:
Annual Contract Value
This is the measure of the contribution that customer has done to your annual revenue bucket. There may be a single order or multiple orders in a year. Revenue remains a key indicator for the yearly growth story. Yes, the yearly contribution has a place in the Metrics to define the value the customer holds for you as the present influences future in the business.
“When you serve the customer better, they always return on your investment.”
Customer Life Value
Unlike B2C, B2B Sales should not be measured on the consistency and run rate. The customer’s yearly requirements may vary drastically particularly when the offering provided by you goes in Capital Expenditure. There may cyclic variations but it’s important to take into account what is the total value of business the customer has done with you in the lifetime. This can help you determine the life time relationship value with the customer. This is one of the key criteria’s in B2C industry to classify their most valuable customers.
Annual Contract Value Margin
This Metrics is the indicator of the annual contract profitability. This is very important for the SME’s who operate with limited capital. With such businesses, cash-flow and profitability are the core to run the business and a balance between revenue, cash-flow and profitability needs to me maintained.
CAGR of Customer’s Business
Customer with high CAGR are very likely to give more and more business to you. Some may have potential to become real big. With time, they have potential to become a big account for you as well. Keeping a track on the customer progress is one the key things the business should do and give preferential treatment to the growing ones.
Product Density and Upselling
The customers who take different offerings from you or are growing the existing ones will find it difficult to switch as their exposure and reliance is more on you. In the long run, they are likely to be loyal to you for doing business and they are most valuable in terms of the continuity of the business. This Metrics also becomes critical for review while you assess customer stickiness.
Referral Value
Such customer’s may influence acquisition of new customers. In addition to the business you do with such customers, also measure the business contribution by the customers referred by them. Taking them into account while grading most valuable customer is an important part of the metrics. The account/sales manager may change, therefore the key stake holders of the business need to ensure relationship continuity with such valuable customers.
Big Logo’s
There are limited big logos in any geography and they are considered as most valuable customers to have. It is very difficult to enter in such accounts and they may start with a small value of business. However, scratching the surface means an opportunity to get deeper into the account and do more business. Also, the testimonial from big logos are most valuable. They have the power to make or break your repute.
Light House Customers
The customers who are in thick of their business know it all. Such customers will help you align and grow your offerings as they are the domain expert. Their value is far beyond the business they do with you. They can provide insight and foresight. They help you evolve your offerings and take you where you need to be therefore for a solutions company, they are the most valuable customers. The CAB (Customer Advisory Board) can help the growth of the offerings in much faster way than the internal product management team.
The above Metrics should always be kept in view while classifying your most valuable customers. All businesses are unique. A business may need to pick up few, many or all of the above metrics.
Most of the large B2B organizations we see today have built their foundation with few most valuable customers. And it’s true that customer define the destiny of the business. The above are the metrics I feel are important to classify most valuable customers. I will be happy hear your views on other Metrics that you feel are important!
