Selling Customer Tracking To Your CFO

I've recently been reading a book by a database marketer named Jim Novo. It's about some simple truths about customer tracking, and analyzing their behaviors, that catalog marketers have been using forever. Jim believes that any CRM initiative, to be successful, must deal with a few highly critical things upfront. If you don't, you put your entire investment into CRM at a high risk of CRM failure.

Lifetime Value Just Doesn't Fit

Jim points out something, that as a former banker and analyst, jumped right out at me. In order for a CRM initiative to be successful, you have to first convince your CFO it's worth the investment. The challenge here is that your customer tracking efforts, and the resulting analysis, do not jive well with the periodic account methods used by your CFO.

The concept of lifetime value doesn't fit well with accounting techniques that are tied into budgeting, security prices and compensation.

In this case, we are not talking about absolute lifetime value, but relative lifetime value (or changes in lifetime value over time)

If you can't reconcile lifetime value with the periodic account benchmarks, you're going to fail. After all, as Jim points out, if you can't extend, or increase, the lifetime value of a customer, why bother with CRM at all?

While there may be some operational efficiencies gained, and these would be certainly welcomed, unless you can tie customer value and profitability to CRM, it's going to be hard to justify (without customer tracking). The majority of CRM ROI comes from the customer side, not the business side (i.e., operational efficiencies) so why wouldn't you address it?

The biggest difference between periodic accounting and customer accounting is the way time is handled. Customer lifetime value is a forward looking approach while generally accepted accounting principles offer a snapshot in time, or a backward looking at performance. Customer lifetime value can predict future performance while the best you can do with periodic account is use multipliers to guess at future performance.

So, there has to be a reconciliation between these two visions, and it has to be done before the CRM initiative begins!

Customer Accounting and Employee Incentives

Jim makes a strong case for implementing a customer accounting system before beginning a CRM initiative. There has to be a way to measure the ROI of CRM initiatives and this just is not possible with a periodic account system. It's your job to figure out how to reconcile these two systems.

Another reason, he points out, for implementing a customer tracking account system is for use with employee incentive compensation. Here's a direct quote from an article Jim wrote:

"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 problem with these conflicting systems is evident with a simple example that any sales manager has likely been faced with at one time or another. In B2B businesses with longer sales cycles, the highest lifetime value customers are statistically the ones which take the longest to close.  Conversely, the customers that are likely to make a quick purchase most likely have to lowest lifetime value.

These are known truths after decades of testing. The same holds true in the B2C world.

So imagine being faced with a revenue shortfall, and with quarterly bonuses tied to those revenues. What would you do? The obvious answer is that you'd focus on the customers you could get a quick sale from. If you're doing this regularly, you'll have an impossible task of getting a return on your CRM investment!  This is where customer tracking can be used to develop incentive programs tied to the growth in customer lifetime value.

If a customer tracking accounting system cannot be established, you've been sent a clear message from your leaders. They aren't willing to look beyond the typical way of doing business. It doesn't matter if it's a full blown system, or simply spreadsheets with data they can use to monitor ROI. They have to buy into it, or the whole project will fail. And this can be predicted before it even starts.

In CRM initiatives that fail, it's almost certain you can point back to a lack of understand of where the company stood as it relates to customer value. If they didn't know where they were, there is no way to track their progress; which is how you justify CRM investments! If tackled up front, a case can be made for bonding relative customer value to the income statement by predicting profitable initiatives in advance. Simple. So simple. Yet hardly anyone is doing it outside of the catalog and online world.

Get your CFO on board early. It's going to be a hard battle!

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