The ONLY Metric to use in 2010 planning

In today’s confusing economic environment, planning for 2010 is full of uncertainty.  To me, there is only one metric to use in planning for 2010, the actual increase or decrease in number of customers.

As an example, assume a company has 1,000 customers.  Under “normal” conditions, it would expect to lose up to 10% or 100 of its customers during a year, due to industry consolidation, change in buyers, competitors buying into the market, etc.  During the same year, it would expect to gain a minimum of 100 new customers due to its aggressive sales force, planned promotions, new products, etc. etc.  Thus at the end of a “normal” year the company would expect to be ahead of where it was when it entered the year.

In planning for 2010, I would take the net increase (decrease) over the past two years and use it to construct my marketing plan. (Note:  I am assuming that the current customer base consists of profitable customers; that unprofitable ones have been purged and are not part of this comparison.)

Bob’s Tool and Die has these numbers:

2008                                                                           2009

Net gain (loss)                                                            Net gain (loss

Added Customers              90                                                                                75

Lost Customers                 100                                                                             125

Net                                           (10)                                                                             (50)

In planning for 2010, many companies will show a loss of customers over the past two years.  Assuming this is the case for Bob’s Tool and Die, the company’s 2010 marketing efforts must be directed to the installed customer base in order to stem any additional losses.  This may include newsletters that are more frequent, customer forums, executive outreach, etc.  The objectives are to acknowledge shortcomings (there are always some) and to assure the customer base that Bob’s Tool and Die is ready to serve them.

The 2010 metric for the CMO is consistent with the financial reporting of today…show a lower rate of loss.  Having the same number of profitable customers in December 2010, which were in place at the end of 2009, would be a superlative performance.

In addition, an accelerating loss of customers over the past two years may be indicative of a number of things, i.e., poor positioning, pricing out of line, poor customer service, uncompetitive products, etc.  The CMO’s job is to determine the cause and work with management to take the appropriate corrective steps.

Comparatively, Alice’s Software shows a gain of 7 customers in 2008 and 25 in 2009.  Here the CMO has a different approach to 2010 planning.  First, whatever she/he is doing is successful, so at a minimum Alice’s CMO must continue doing it.  The near term emphasis should be on finding out what marketing tool is most effective (Direct Mail, Podcasts, Digital Marketing, etc) and to do more of it.  The performance metric for the CMO at Alice’s software for 2010 is to replicate her/his 2009 performance.

To me, the other available metrics (ROI, Click Thru’s, # of impressions, # of qualified leads etc.) are simply measures of activities and are reflective of tactical means to an end.  For the CMO and the enterprise, the only real metric for 2010 is the number of profitable customers…is it increasing or decreasing.

My response to those who want to focus on profitability is, focus on the customers first.  The company can scale its infrastructure to the number of customers, but if this number is unknown, then the appropriate infrastructure cost of the company is unknown, as is its profitability.  This applies to both hardware and software companies.

What metrics are you using in your 2010 planning?  Is it focused on your customers?  Do you know how many customers you lost and gained in 2009?

RHM 10/22/2009

1 comment to The ONLY Metric to use in 2010 planning

  • Debashis Sengupta

    Your Bob’s Tools and Die and Alice’s Software examples are simplistic (in a good way) that help readers understand your core argument, and you are also right about the overarching strategy of focusing on current customers. However, some of Bob’s Tools and Die customers could be leaving simply because Joe’s Hardware now has a more state of the art array of tools. Not necessarily because Bob’s Tools and Die is doing anything less effective in areas you outlined. In other words there is always a competitive element involved in the matrix. In this economic conditions, brand loyalty means little, only niche products (or confirmed leaders in category) would be able to hold on to their customers. So, while net customer add is a great metric to monitor at a brand level, for a true picture one needs to apply the same metric at a category level as well.

    To me, the other available metrics (ROI, Click Thru’s, # of impressions, # of qualified leads etc.) are simply measures of activities and are reflective of tactical means to an end. —- I agree with this completely. Especially in this economy customers are busier looking for (cheaper) alternatives everywhere.

Leave a Reply

You can use these HTML tags

<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>