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Stand up, and face the front of the room. Now turn around 360 degrees. You end up facing exactly where you started. The trick is to keep your eyes open as you spin, and be aware of what is going on around you.

It is exactly such a 360 degree view that allows you to determine which of your customers are most beneficial to your bottom line. You need to look not only in one direction (not just at revenue), but all around at your customer-facing activities.

A 360 degree view often focuses on customer segmentation, and how a company interacts with its customers through the marketing, sales and service channels. Let’s extend that to also include the financial impact of accounts receivable. How do you analyze the value of each of your customers today? Have you scanned the entire room – or at least all the details pertaining to each customer? What do you need to consider when determining who your most valuable customers really are?

  • Order volume is important. But which products are your customers buying? Is a particular customer consistently ordering high-margin or low-margin products?
  • Are there extra costs associated with the majority of orders placed by a particular customer, such as expedited delivery or non-standard features?
  • Does the customer frequently return products, or ask for extra services over and above the warranty – at no charge to themselves?
  • Does the customer pay? The full amount? On time?

 

A simplified example:

J. Watson is a sales agent at Firestation Supplies, Clothing & Meals (FSCM  for short – a name that coincidentally has a striking resemblance to SAP’s Financial Supply Chain Management solution!). Watson has just taken two orders, both for fire engine hats.

  • The first order was placed by customer RED (Red Engine District) for $1 million, for hats with a non-standard red color that exactly matches their engines. And they need them in three days, for Valentine’s day.
  • The second order was placed by customer GREEN (Groveside Real Electric Engines, North) for $250,000, for standard green fire engine hats. The hats are needed in a month – for the annual St. Patrick’s Day parade.

Watson gleefully calculates his commission and goes to his manager, S. Holmes, to work out a plan to sell RED more products. Holmes, though, has been concerned; although RED has placed many large orders, they are also returning large quantities of products. The extra costs to expedite this latest order cannot be billed back to the customer under the current contract, reducing the margin on this order.

Holmes decides to now look at the accounts receivable impact. Thanks to a 360-degree view in his reporting, Holmes’ suspicion is confirmed. It is evident that RED is going over its credit limit with this last order. Customer RED has not been paying outstanding invoices, and several items are in dispute.

 

Holmes makes the following deductions:

  • FSCM reporting shows that RED is not paying their bills. The collections and dispute departments need to prioritize this case to work through the outstanding invoices and disputes. 
  • GREEN has an excellent payment history, and their orders do not incur extra internal costs. The credit department should consider increasing their credit limit; marketing and sales should agressively market additional products to them.

 

For a particular customer, it’s not just about the revenue. All costs associated with the customer, from extending credit to providing service, need to be included in the analysis of which customers are truly the most profitable and valuable to your company. This should be a key element in your sales strategy.

As S. Holmes would say, “It’s elementary.”

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9 Comments

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  1. Vijay Vijayasankar
    If you have several customers, and you focus on just the top ones – it could REALLY hurt you. I was a big believer in such segmentation myself but after listening to SAP’s Hasso P, I realized that it is such a flawed starategy to lose sight of those not in top-1oo. 
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    1. Birgit Starmanns Post author
      Hello Vijay,

      I completely agree with you.

      It is all too common to go after just the large customers (in my example, the ones who place the million dollar orders). But my example advocates looking at the entire picture of all aspects of dealing with a customer (including payment) – and actually putting a strategy in place to go after the customer with the smaller order value.

      , because they are

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  2. Witalij Rudnicki
    Nice story telling. My understanding of 360 degrees view is a though. It is not when you are in the center and spin around to get an overview around you. It is rather when your customer sits in the center of the room, and you are walking around him to get complete view of the person including what is behind smiling face 😉

    BTW, because *360 degrees view* already went into mainstream of the business lingo, it is just a matter of time when next “business guru” or “thought leader” comes with a new concept of *sphere view of the customer* saying that we need to move from 2D perspective into 3D.

    Have a nice Valentine day,
    -Vitaliy

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      1. Witalij Rudnicki
        Vijay, the pace of business terms inventions is one issue, yet (as you said) the pace of adoption of those is yet another problem. The fact that “Talent Management” term has been known since 1998, does not change the fact that most of the companies keep treating their employees as “resources”. I heard though that IBM did indeed implement “talent marketplace strategy”. Cheers. Vitaliy
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        1. Vijay Vijayasankar
          Employees as resources is an unfortunate way of looking at people who make an enterprise function – and probably the term HR came into existance in a manufacturing environment where cost of a human is an important part of the total cost of goods produced. I think it is also partly due to the volume factor – as some companies grew in size, they probably found it effective to group employees in manageable chunks of resources like with materials. And it must have worked for a while – because the term HR was around for a while. And once companies found employees hated being termed as “resources”, they moved to “HCM”, “talent management” etc.

          Look at HCM – does it make any one feel better to be though of as “capital”, as opposed to “resource” ?

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  3. Shrinivasan Rajagopalan
    Having a 360 degree view on customers is not only intuitively appealing, it also makes great business sense as evidenced by your example. 

    Combining revenue (and accruals or linkable work-in-process), AR, order volume, pipeline, etc. in conjunction with disputes, support issues and other dealings would help provide a 360 degree view, not only to the customer facing teams, but also to backoffice finance management who can take appropriate proactive actions in handling disuptes, collections, etc. to mitigate further damage. Its funny how (typically in large corporations), the component information to build such a view resides in diverse systems or modules, calling for moderate-to-daunting effort to aggregate this. Despite that it would be effort worthwhile that could pay back simply in superior decisions.

    I would also like to add that this aggregation also opens up a whole area of intelligent composite KPIs where you can measure/track the quality of a customer based on several of these factors and cleverly use them to in determining business moves.

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