October 19, 2007
I recently heard from a client who wanted to know whether I had any data or best practices around how business-to-business firms define – and count – their customers.
Here are two scenarios to consider:
A large software company sells to Vodafone UK, Vodafone Spain, and Verizon (US). All are owned by the parent company, Vodafone. Each entity goes through a separate buying process, contract negotiation, and installation. How would you count this: as one customer or three?
A top ten professional services firm has separate engagements with GE Money, GE Appliance, and GE Medical. These are three very different businesses, each with a separate purchase process. How would you classify any subsequent sales to GE Appliance: cross-sells/upsells or new business?
My perspective: I see B2B companies define “customer” as a legal entity with which they have a contractual obligation. A “customer” is the part of the organization with the budget authority and the potential to deliver a future revenue stream through service contracts, training, consulting, upsell/cross-sell, and the like – without having to run to the parent for approval.
In both of the examples above, I would count three customers rather than one. In either case, the customer database/CRM system should recognize a relationship between all of the entities – and expose the relationships to sales and marketing teams. Knowing these relationships helps the sales and marketing teams leverage internal references and find new cross-sell, upsell opportunities.
Here’s what’s important. However you define it, does your definition of “customer” help you:
1) Understand the profitability and lifetime value of that entity? Can you draw a box around the entity and say “the value we get from this relationship exceeds our costs of doing business with them by a factor of ….”?
2) Understand the potential for future revenue streams from that entity and the strength of the relationship? Strength of relationship can include intangibles like loyalty, referenceability, willingness to engage, and ease of doing business with them.
Does my advice ring true for you? How do you count your customers? Feel free to comment on this post or drop me a note at firstname.lastname@example.org.