January 12, 2010

Planning: Customer Retention

We're talking about Annual Sales Planning this month, a lost art in the e-commerce era. With most web analytics tools heavily focused on the tactics surrounding conversion, few people now focus on the strategic art of planning the future of a business.

Last week, we studied a business that was forecast to decline by 4.4%, due to having fewer good customers after a lackluster 2009. One way to grow the business is to dramatically ramp-up new customer acquisition. This can be an expensive proposition.

We can go through another exercise. Let's identify what has to happen in customer retention, in order for the business to be flat in 2010.

The cells in red are the ones that I changed. I increased customer retention rates by 6.1%, across the board. When I do this, the business is flat, year-over-year.

As an analyst, it is your job to communicate the productivity improvement needed to keep the business moving in the right direction. And if there isn't a marketing strategy that can improve retention by 6.1%, then it is up to the merchandising organization to sell product that is 6.1% more compelling than last year.

Do you understand how this style of analysis takes the pressure off of the marketing organization? The marketing analyst sets the table, communicating to all business leaders what is likely to happen if "all things remain constant". All Executives now know that there has to be a 19% increase in new customers, or a 6.1% increase in customer retention, in order for the business to just stay afloat.

Armed with this information, marketing outlines what it will do in order for the business to get closer to growth. The merchandising organization outlines what it will do in order for the business to get closer to growth. The e-commerce team outlines what it will do in order for the business to get closer to growth. All parties have a job to do, accountability can be assigned.

This is why we do Annual Sales Planning, a lost art in the era of e-commerce real-time software conversion analysis.