Your Company’s Most Powerful Tool

by | Small Business Financing, Small Business Funding

If memory serves, it was Vince Lombardi who said, “When you have a cannon, you need to fire it.”

Lombardi was talking about running back Paul Hornung, and responding to criticism that he was giving the future hall of famer too many carries. But after five NFL championships, including wins in Super Bowls I and II, it appears in retrospect that the Packers coach knew exactly what he was doing.

But what about your company’s cannon? You probably aren’t using it enough. In fact, are you even aware of what it is?

In the interest of time, let’s cut to the chase. Your company’s most powerful tool – and very likely its most underutilized – is its customer database*. Really.

Your current customer database can help you manage relationships, monitor customer satisfaction, identify key trends, and improve sales. Leveraged properly, a database can help your company grow like no other resource at your disposal.

(*This is to not discount great employees, or great service or product offerings. It goes without saying that they’re critical to a company’s success. But without a customer base, or at least potential customers, nothing else matters. And proper use of your customer database can ensure that the strengths of your people and offerings can be put to their best use.)

Customer Databases

There are actually two kinds of databases your company needs in order to run effectively.

  1. Operational databases. These databases are used for conducting transactions, tracking orders, recording payments, and managing customer deliverables.
  2. Marketing databases. Marketing databases may obtain most of their information from the operational databases, but are used to implement sales and marketing strategies and plans.

Sort, sort, sort

To effectively engage in database marketing, your customer list needs to be sorted, or organized and segmented. A good software package can sort customer data by products or services purchased, date of last order (more on that coming), dollar volume, and other relevant criteria. A hard look at your data can help you understand your customers better than ever before.

One possibility: Examine all customers in a particular range determined by dollar volume spent. Notice what they’re usually buying and look for the accounts that don’t conform – those that aren’t buying everything everyone else is. Marketers refer to this (what they’re not buying) as the account’s Next Best Product (NBP), and they’re probably buying it from someone else.

You probably know where these opportunities are already. Put a sales rep on it…now! Pitch them a deal, or at least find out when you can bid on the next opportunity.

Make a Sale Today!

Database marketing guru and business author Arthur Hughes promotes a number of database strategies that can boost your company’s revenue. One powerful technique, that has actually been around for more than 50 years (and mostly without the benefit of sophisticated database programs), is customer RFM analysis (that’s Recency, Frequency, Monetary).

RFM analysis was developed around the assumption that the best predictor of future behavior is past behavior. This has been proven to be true for consumers and for those with purchasing authority in a company structure. To conduct the analysis and predict where the best chances for sales are in the current database, each customer’s entry should record:

  1. Recency. (When did they buy last?)
  2. Frequency (How often did they buy in the last month, quarter, or year?)
  3. Monetary (How large are their orders?)

Complicated strategies can be employed to tap the potential of RFM, but to wade into the pool, consider a test using just the Recency component.

If you sort your customers by Recency, dividing them into quintiles (most recent 20% of buyers, next 20%, etc.), and then send an offer, proposal, or other promotion to the entire database, customers in the top quintile – the very most recent – are three times as likely to respond positively as those in the second and third quintiles, and about 12 times as likely as those in the bottom quintile.

Your numbers might vary slightly, depending on the offer, your industry and other factors, but the bottom line is, as a sales and promotion strategy, Recency works. Why? It’s likely some combination of familiarity, comfort level and satisfaction regarding the recent purchase. Whatever the root causes of this behavior, marketers have relied on this knowledge for years.

This is not a recommendation for abandoning your current sales strategy or ignoring customers you haven’t heard from in a while. But if you want a near-term revenue boost, play the odds and promote to your recent buyers.

Putting it in action

Basic functions, like sorting and ranking can be accomplished with any standard database program, like Microsoft’s Excel or FileMaker Pro. If your company is considering a full-blown e-commerce effort, a dedicated CRM (Customer Relationship Management) program like SaleForce, NetSuite or Zoho might be in order.

But whatever you decide, don’t ignore your database when planning your marketing and sales strategies. You have a cannon, so fire it.

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