Harvesting New Profits from Your Customer Base

In today’s economic climate, customers closely scrutinize every dollar spent, often curtailing or even ceasing investment in those enterprise solutions that don’t deliver value. Even now, when taking care of customers is more crucial than ever, surprisingly few companies are investing in their current client base and doing it well.

But smart organizations can generate recurring revenues, improve customer references, and increase satisfaction by implementing a set of best practices that will enable them to better understand customers and build transformational relationships. By applying the three best practices detailed below, one fast-growing enterprise solutions company increased sales within its existing customer base from 20 to 30 percent in just two years.

1. Reorganize for success. To fully understand their customers, firms should first create a subset of the organization whose mission is to build and nurture customer relationships. A small (though growing) number of innovative companies have appointed a chief customer officer (CCO), an executive-level position that elevates the needs of the customer within the management group.

The CCO’s team—the strategic customer group—is responsible for managing key aspects of the customer relationship, from providing ongoing support and training to helping extract the full value of the solution. To build this type of team, follow these steps:

• Expand your tactical account management team and redefine it to strategic relationship management. Account managers are often perceived as order-takers, as opposed to strategic managers who are trusted partners and customer advocates.

• Add relevant industry expertise as a core skill set requirement for strategic relationship managers. With domain expertise, strategic managers provide substantial value to customers in overall solution strategy, execution, and performance.

• Define success metrics such as customer satisfaction, the number and quality of references, quarterly touch-points, the number of strategic partnerships, installed customer base revenue, and total value realized.

2. Define and deliver value. According to a 2008 SandHill.com and Neochange Survey, some 90 percent of software buyers list value realization as the number-one indicator of enterprise software success. To ensure your customers realize the full potential of your solution, build a value realization (VR) function. Follow these steps to get started:

• Assemble a team of experts who are highly knowledgeable about the customer base and the sectors in which they operate. The ideal VR consultant is analytical, an expert in the solution category, and has deep industry experience.

• Offer the service for no fee initially so you can prove the effectiveness of your methodology.

• Develop a value framework with clearly defined deliverables using the example below. Note that value realization should begin during the implementation process.

To illustrate how this process might take shape, consider a large industrial manufacturer that implemented a price management and optimization solution to help improve profitability and reduce margin leakage. Upon go-live, the manufacturer found one of the causes for reduced margins was the team inadvertently negotiating away the cost of add-on equipment during the course of the sale.

By working with solution provider’s value realization team and leveraging the value realization process, the organization set a new policy requiring any surcharge costs to be negotiated in every order. The new policy helped the manufacturer recover millions of dollars in lost profits within four months of implementation.

3. Climb the relationship ladder. The Holy Grail in customer relationship management is creating the sort of transformational partnership that leads to customers designating your company a strategic vendor. To build these long-lasting and profitable relationships, organizations need a framework to define each customer relationship and to map a path to improvement.

One such transformational framework is Miller-Heiman’s Large Account Management Program methodology. It segments customers along five dimensions, which vary from point-solution customers to transformational buyers. At level five, the customer recognizes your company as a strategic vendor, or a provider that has a critical impact on their business.

Once you’ve put the transformational ladder in place, organize meetings in which the chief customer officer and strategic relationship manager (SRM) discuss the current relationship status with each customer. Show them the diagram and institute a plan for moving up the ladder.

For example, last year, an enterprise solutions provider met with a customer that fell on level two of the scale. The vendor had just delivered the value realization case showing the company had saved $2.5 million with its solution. Upon presenting the findings to the CIO, CFO, and senior business leaders, the vendor built deeper relationships at the executive level and secured additional investment for the next phase of the project.

The emphasis on relationship building and value realization further led to a company-sponsored forum to develop a long-term strategic plan around the provider’s solution. As a result, the customer officially designated the solution provider as a strategic vendor—representing a mutual move up the relationship ladder.

Building on Best Practices

The current, volatile economy puts increasing pressure on enterprise solution vendors to demonstrate their business value and to cultivate long-lasting customer relationships. The best practices outlined above provide vendors with immediately actionable steps to harvest opportunities within their existing customer base. It is critical that organizations realize their success as a company is directly related to their customers’ successes with their solutions.

By not investing in a set of solid best practices like those outlined above, you’re potentially putting your business at risk. Instead, you should focus on building highly skilled, customer-centric teams to develop strong relationships across the customer organization, from executive management to project teams. Invest in value realization processes and services to help customers extract the full value of your solution.

Finally, define clear road maps with your customers leading to strategic vendor—or transformational relationship—status. These investments will pay dividends in proven value delivery, increased customer satisfaction, and higher installed base revenues.

Surely, this is something your organization must do and do well.

Jennifer Maul is chief customer officer for Vendavo, a global provider of price management and optimization software for B2B companies. She can be reached at jmaul@vendavo.com.