Over the last year every organization that I have worked with has calculated customer lifetime value (CLV) in some form or fashion. That isn’t surprising given all publicity and commentary around CLV and its value to the business. Heck, any large organization that has not determined CLV is considered behind the times if you talk to trade journals and experts.
What has peeked my interest though, is every organization that has determined CLV doesn’t fully believe in the way it has been calculated or does not know how to make the metric truly meaningful when making organizational decisions. Furthermore, there seems to be a question around who should own CLV, its maintenance and implementation in decision making?
At the end of the day, Sales Operations should own the calculation and implementation of the CLV metric into the Sales Performance Management program because sales operations has a keen understanding of financial policies and has line of sight into both sales and marketing organizations. So where should sales operations start once they take ownership of CLV?
4 Ways Sales Operations can leverage Customer Lifetime value to improve decision making
1. Determine the optimal level of Sales and Marketing resources
Properly calculated customer lifetime value will clearly state the value of current and newly acquired clients. Sales operations should focus on balancing CLV against Customer Acquisition Cost to enable the organization to achieve its objectives, whether that is profitability or revenue growth.
2. Conduct Sensitivity Analysis
Leveraging Customer Lifetime Value to conduct sensitivity analyses enables sales operations to determine the power of spending extra marketing and sales dollars. Specifically, Sales operations can identify the incremental gain on hiring that new sales representative, launching a new lead generation campaign, or investing in search engine marketing.
3. Examine the impact of sales management strategies
To determine CLV it requires a number of metrics including client retention rate and average deal size which sales operations should be monitoring on a regular basis. By watching CLV and its components, sales operations can determine if the sales management strategies are generating results and increasing the value of the customer.
4. Determine which accounts are truly “Key” Accounts
Interestingly enough, determining which accounts are truly “Key” is something a number of organizations have a hard time with. (Read my colleague John Staples article on Key Account Management Selection Criteria) When conducting your portfolio analysis CLV can help you identify accounts where investments in resource allocation can really drive some significant results.
At the end of the day Sales Operations should own the Customer Lifetime Value calculation because it can be leveraged in a number of different ways. Furthermore, many of the components that make up the CLV calculation are already tracked by the sales operations team as part of the Sales Performance Management system.