It’s a saying you hear a lot: Your most important customer is the one you already have. Yet, it bears repeating for two reasons. One, it’s true: it costs less to keep an existing customer than it does to acquire a new one. Two, it’s so easy to forget.
So, maybe you need more than platitudes to keep your sales team, your executive team and your board focused on your most valuable customers. You may need data, especially when communicating with your board. These are the most experienced advisors you have—they’ve seen dozens of other companies like yours—but they’re not with you every day. Once a month they need a fast education on the areas where they can have the most impact.
In this blog post, we’ll introduce key concepts to help identify your most valuable customers and increase your engagement with them, so you can communicate more efficiently with your board in your monthly meetings.
A lot of sales teams focus on net retention and customer acquisition cost (CAC). Yes, it’s important to keep renewal rates up and CAC down, but in the early stages of a new company or a new product, when you’re still working for product-market fit, these views can be myopic. Sometimes your most valuable customers are more expensive to acquire, and they’re worth it. Sometimes, however, your churn is happening in segments where the fit is never going to be right, and you should be letting them walk away.
A true measure of value should tell you how much you should spend to acquire those customers. In this case, customer retention, while important, doesn’t capture upsells. With the long-term relationship in mind, customer lifetime value is a better measure of your customer’s value.
Looking at lifetime value by segments, such as industry or average contract value (ACV), you get a view into where product-market fit is really generating the most value for your company.
When you’re in the product-market fit phase, focusing on retention is “like fighting bees,” says Jeff Fagnan, founding partner at Accomplice and a veteran early-stage investor. Instead, Fagnan prefers to focus on lifetime value.
All companies have a sweet spot, he says, a combination of offerings and engagement where a customer is far less likely to churn and becomes a much more valuable customer. Life-time value is the key to understanding where that sweet spot lies and investing to put more customers into it.
Fagnan calls this product entanglement. “I believe every company has a metric around product entanglement,” he says, “where you’re like, ’OK, if I can get them to use these two products and I can get them to use both products on a weekly basis and respond to this set of alerts that customer will never churn.’”
Going Deeper With the Board
Not every board meeting is focused on sales. But when it is, you want to spend as little time as possible educating, and as much time as possible working with your board in the areas where they can help the most. In our ebook, Sales Board Meeting Essentials, InsightSquared collected more advice from Jeff Fagnan and four other seasoned investors on four strategic topics you should focus on to run a successful board meeting. The sales metrics, KPIs and insights include:
- Customer segmentation: find the “right” customer, rather than spinning wheels. Learn to slice your funnel more finely.
- Competitive analysis: leading indicators can be found in referral rates and win rates vs specific competitors. Learn to read signs like head-to-head win rate and lead source.
- Marginal analysis: in growth mode, you need to know you’re scaling. Learn to read the signs of rising customer acquisition costs in new rep ramp-up times.
- Existing customers: not all retained customers are equal. The customers that stay the longest and grow in value over time are the ones to watch. Learn how to find them.
In order to put a picture in front of the board that they can digest quickly, a sales leader needs to have data at the ready. Better than data is a clear visualization that sets the stage for strategy sessions that can make the difference between success and failure.
Read our full ebook on the sales data points and visualizations that are critical to successful board communication here, and please take a minute to contact us and let us know how you are using data to efficiently strategize and talk with your board inside your organization.