Best Practices for Service Companies to Grow Customer Share

Highlights

  • Research shows that the Best-in-Class professional services companies did not achieve the top financial performance results with random strategies, processes or technologies. The data reveal they excelled by adopting proven programs that achieve forecasted results. Three of the programs consistently used to grow customer share were customer affinity, strategic account management and customer lifetime value.
  • Customer affinity turns first time buyers into repeat customers and repeat customers into customer advocates. And that makes customer affinity a professional service company's most valuable and durable asset and a proven program to increase customer share and retention.
  • Strategic Account Management programs shift sales to existing customers from reactive to proactive, and from random purchases initiated by clients to intentional sales pursuits led by salespeople.
  • Customer Lifetime Value is a leading indicator of revenue growth. It's an efficient and highly effective measure of a service company's relationship with its customers and indicative of future revenues and profits. CLV is influential because even small increases multiplied by the number of customers creates large revenue growth.
Johnny Grow Revenue Growth Consulting

Many times, customer growth programs are born from interesting ideas or ambitious explorations. Unfortunately, unsupported methods most often lead to trial-and-error pursuits that squander investments and delay results.

A better approach is to replicate the customer growth programs that have been proven most effective by top performers. Evidence-based best practices are born from research findings that show what the Best-in-Class service leaders (i.e., the top 15%) did to outperform all others.

They are prescriptive recommendations that save time, increase focus, lower risk and show the most direct route to growing customer share, lifetime value and retention.

How to Grow Customer Share

There is no one-size-fits-all method to grow customer share and customer lifetime value. But there are customer management proven methods that share valuable lessons on what works, what doesn't and how to prioritize time and investments for the biggest revenue impact. Here are some of those lessons.

Professional Services Best Practices

Start with Customer Affinity

In the services industries, customer relationships are far more influential in growing customer share than most other industries.

However, when the mission of growing customer relationships is left to informal methods, the results are inconsistent. Some services company partners and managers will succeed while others struggle. To grow customer relationships systemically and at scale requires a customer strategy.

The overarching goal of a customer strategy is to create customer affinity. Customer affinity is important because strong customer relationships are a leading indicator of increased customer purchases, referrals, customer share and retention; all factors that deliver significant and sustained revenue growth.

Customer affinity also translates to lower cost of sales, word of mouth referrals and customer advocacy. Even better, it creates a protective barrier against competitors offering similar services and benefits.

But achieving customer affinity doesn't occur by happenstance. It's built pursuant to a well-executed plan. The below diagram illustrates the 6 components to achieve customer affinity and downstream revenue and profit objectives.

Customer Affinity Framework

Despite the benefits, customer affinity research found that most service companies do not have an active customer strategy. However, those who did increased customer share far more than those who did not.

The research also found the four most used customer strategy frameworks are Customer Relationship Management (CRM), Customer Experience Management (CXM), customer engagement and customer loyalty programs. Each of these customer strategies has overlap with the others but is unique and delivers unique benefits.

Customer affinity is one of only four sustainable competitive advantages and a differentiator that is not easily duplicated by competitors or displaced by new technologies. In fact, achieving customer affinity creates a connection that can withstand disruptive technologies, competitor encroachment and the erosion of other competitive advantages.

Expand Customer Share with Strategic Account Management

Many service companies apply much more focus and investment to new client acquisitions and give short shrift to proactively upselling and cross-selling existing clients. That's a missed opportunity to increase customer share and drive incremental revenues. And because selling to existing clients achieves a much lower cost of sale, it also misses high margin revenue growth.

To do better, research shows that the highest growth service firms apply Strategic Account Management programs to systemically grow client share. In fact, the Sales Excellence Report found that service companies with active Strategic Account Management programs achieved 24% higher existing client sales than those without.

Think about that. A single sales program that grows existing customer revenues by double digits. That should cause any services sales leader seeking high margin revenue growth to take note.

But the research also found account management programs are easier said than done.

Strategic Account Management (SAM) is most often informal and inconsistent because of a lack of process and supporting technology.

SAM processes should be solidified in strategic account plans. These plans are long-term sale opportunity roadmaps that provide prescriptive actions to align company services with customer growth aspirations over an extended horizon. This brings measurability to land and expand sales strategies.

Strategic Account Plan

Technology automation is initially challenged as few CRM systems support SAM and account plans. However, some CRM systems offer ecosystems of third-party products for this purpose. Or alternatively, something we do frequently is create a new CRM object with a subset of the opportunity object fields. In either case, CRM software manages the data to feed the strategic account plan and makes highly relevant service recommendations for up-sell and cross-sale.

When CRM and Professional Services Automation software are integrated or delivered within a single application, a central customer view and project view provides partners, salespeople and account managers relevant and contextual business intelligence that can be used to identify future projects.

The highest growth service firms do one more thing.

They monitor their customers to predict and prevent customer churn.

In the services industry, that means knowing when projects put customers at risk and when customers go idle for too long.

Customer churn prediction and prevention is a game changer for service companies that struggle with customer retention. The ability to improve client retention delivers significant and sustained revenue growth. So, to aid that goal you can leverage CRM software to calculate customer health scores and use AI algorithms to identify projects and clients at risk.

Project Health Report

Even better, knowing why projects fail or customers leave permits companies to fix causes of churn and prevent that churn before it happens.

Customer Churn Prevention Data Transformation Framework

Measure with Customer Lifetime Value

There is no single metric that defines a customer's value, but customer lifetime value is the best starting point.

Most service companies measure customer profit, but that's a backward-looking historical metric. Customer Lifetime Value (CLV) is a predictive analytic that forecasts future value.

CLV is the present value of the future cash flows attributed to the customer during the lifetime relationship with the firm. Some service companies will present CLV as a revenue figure. Others will deduct customer related expenses, such as customer acquisition costs and costs to serve, and present it as a profit figure. We generally recommend the later. Either way, CLV is a projection showing the financial value of each customer to the company.

But most service companies don't act on CLV because their CRM application doesn't calculate it in the aggregate, by segment or for each customer. They are simply without this important metric.

Fortunately, adding a CLV score to each customer record is not a difficult task. However, it should be done pursuant to defining what actions to take based on the value. Here are some guidelines to get the most action from a CLV value.

  • Before you can increase customer lifetime value, you need calculate CLV by customer segment and for each customer and insert this metric to the customer record so it is available for information reporting and workflow processing; and so it can be acted upon. Display this value in the CRM software, at the account record.
  • Advancing from static to dynamic customer segmentation will result in more accurate CLV calculations, and thereby enable more precise, timely and contextual communications, service recommendations, support services, and customer experiences.
  • CLV scores will prescribe actions to increase customer value. But those actions require time and investments. Before you invest to increase customer value, use professional services industry benchmarks to objectively forecast the financial uplift. This will prioritize investments by ROI and tell you which investments deliver the most payback. The example below shows how changes in Customer Satisfaction (CSAT) impact CLV and revenue.
Customer Experience Predictive Analytics
  • To grow customer value, you need to know what customers want. Customer intelligence provides the insights to understand customer behaviors, top priorities, decision criteria and what it takes to grow customer share.
Customer Insights Integration to CRM

In the above diagram, customer intelligence is componentized so it can be easily applied to different use cases. It also feeds the Account Plan for Strategic Account Management.

Customer intelligence can be acquired by harvesting digital footprints and online behaviors and using data to create customer segments, personas and a 360-degree customer view in the CRM account record.

It can also be expanded with a voice of the customer (VOC) program which uses mostly digital tools such as periodic surveys to ask customers what they want and record those answers in the customer record. Other data sources such as customer input provided from social networks, community dialogues, omnichannel engagement and case resolutions should also be used.

  • Increasing customer share at scale is aided with performance metrics that precede or align with customer share. Most customer metrics are stagnant, historical and do not provide the insights to grow customer share and customer lifetime value. However, a short list of metrics frequently leads to changes in customer value.

These leading indicators vary somewhat but often include customer health score, Net Promoter Score (NPS), CSAT score, Account Engagement Score (AES), purchase history (RFM), and online advocacy.

We've also found a few metrics, such as increasing trends in credit memos, A/R aging and Days Sales Outstanding (DSO), that are indicative of future declining customer share. Recognizing these metrics is needed to take swift course corrections. Putting the most important metrics in professional service dashboards keeps them front and center.

The bottom line is that Customer Lifetime Value can be used to systemically and predictably grow customer share. It is also effective in recognizing customer relationships as assets, repositioning customer focus from short-term profits to long-term lifetime relationship value and complimenting other customer-centric measures such as customer satisfaction or NPS.

See the best practices for professional service companies to increase customer share and accelerate company revenue growth.

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