Customer Accounting For CRM

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Reconciling the Mismatch with Periodic Accounting

***tier3square.shtml***Customer Accounting is one of those things that seems to be glossed over in CRM discussions. It seems like such a high level discussion that I am amazed that the best discussion on it that I can recall is in Jim Novo's book "Drilling Down - Turning Customer Data into Profits with a Spreadsheet ".

While this book is written for folks that don't have a PhD, it gets down and dirty.

Getting this figured out up front is going to require you to sell this to your CFO. This sort of person has probably lived their lives in periodic accounting and analysis and could have a hard time buying in when you tell them that your going to increase customer value, but he or she won't see it in their numbers right away.

Another problem that you'll have is tying employee incentives into customer-side ROI if you don't have a means of tracking changes in customer value. Here's what Jim Novo says (page 191)...

"You can talk the customer-centric talk all you want, but if your CRM ROI relies on customer accounting and your incentive plans are based on periodic financial accounting, you could end up sabotaging the CRM effort by actually rewarding employees for CRM failure."

The argument here is pretty simple. If you've determined that the best way to move forward in your business is to increase customer lifetime value through a CRM initiative, then traditional compensation methods will no longer work.

If you believe that in B2B markets the long term value of customers is directly proportional to the challenge of selling to them, then the more complex, higher dollar deals will yield a more valuable relationship. So, what happens you're not making your "numbers" this quarter? Answer: you're more likely to go for the easy sale. After all, that's how your incented. But, this won't help you add value to the business, will it?

So, since you probably don't have a customer accounting "software" system, what can you do to begin this journey in your organization?

Some simple Customer Accounting Reporting

In Drilling Down, Jim provides a couple of really simple reports you can create to help visual the progress your company is making in it's customer-centric endeavours.

The first thing you need to know is where you're starting from. So, you need to get this done before you even begin this journey. Otherwise, you won't be able to measure your success.

Sales by Customer Volume

• The first thing to do is figure out what the best period length is to make measurements in your business.
• Once you've done that, collect all of your revenue transactions for this period and aggregate by customer.
• Then determine appropriate sales ranges for your business.
• Then produce a table showing the % of customers within each sales range (make sure you include non-buying customers in the $0 range)

Here's a simple table that Jim uses in his book to convey this idea:

Sales per Customer during Periodic Time Frame by Sales Volume	Percent of Customers in Sales Volume Range
Greater than $1000	2%
$750-1000	6%
$500-$749	12%
$250-$499	15%
$1-$249	25%
$0	40%

You'll want to update this report for each period you determine and compare to the prior periods. What you're looking for is the customers contributing to the higher revenue ranges for a period increase with a decreasing in customers contributing to the lower revenue ranges. Pretty simple, but powerful.

Sales by Customer Longevity

• Collect all of the customer revenues for the period you pre-determined
• Aggregate them by Start Date of the Customer
• Produce a table showing the percentage of revenue generated by customers for each start period

Here's a simple table the Jim uses in his book to convey the idea:

Customer Sales Began in this Period	Current Period Sales by Customer Start Period
Current Period	40%
One Period Ago	30%
Two Periods Ago	15%
Three Periods Ago	7%
Four Periods Ago	5%
More than Four Periods Ago	3%

If you are looking to extend existing customer value and eliminate high acquisition costs, you would want to see these percentages rise in the older start periods.

Closing out the Customer Accounting for CRM Discussion

Before you begin your CRM journey, make sure you understand where you stand today relative to the value of your customers. If you're not a massive company with millions of dollars to spend, and most companies aren't, don't get frustrated. Start with something simple like this.

While Drilling Down is not a CRM book per se, the customer-centric CRM theme runs throughout and brings a marketers perspective to the table. I go back and read this book regularly. It's an awesome book for anyone, but especially those who are interested in moving their business forward with an eye to the customer.

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