I would like to comment on a topic that is always on the table when talking about the new Customer Management model , but which is almost never implemented until its final consequences. I mean the struggling concept of «P&L» of the Area. The consideration of the function not only as a cost center but also as a profit center, and the vision and valuation of its resources’ needs and results under this new prism.
Traditionally, the areas responsible for the generation of income or profit in a company have been those linked to Sales and Business Development. Also Marketing is seen under the magnifying glass of the generation of growth as a result of the measured impact of the new products it defines, the campaigns lauched or the results of the pricing models designed. These areas have endeavored to build ROI models that analyze and measure the impact of their work in the company’s revenues. And they have done it, successfully or not, in a more or less scientific way, coexisting in many occasions with questionable estimates. Anyway they have done it, and they are proud of the results and use them to measure their contribution of value to the Company.
However, Customer Management is often seen as a «necessary evil» (sunk cost) that must be offered to keep customers during their life time cycle. Many times the costs are assigned to this unit, while the benefits coming from cross-selling or retention activities are assigned to the units that generate the offers (leaving Customer Management as one channel more). This is the origin of some of the evils that we have already discussed in previous posts, and that leave in many managers’ minds the idea of huge amounts of money «spent» in this Unit without a clear or explicit return (giving sometimes the idea that perhaps those resources would be better used in other parts of the Company). Therefore, it is urgent to give a solution to the lack of visibility of these resources, bringing to light with transparency what they are used for and what benefit is provided to the Company.
Well, I think there are two ways to approach this situation, and both are radically opposed: either the costs of care are «shared» among all areas of the company, or customer service channels are treated as everyone recognising that the organization has to develop its customer base and measuring accordingly its profitability.
In the first alternative there is no strict P&L of the area, but what we do is assign the costs to the different units of the company that may have originated them. We then manage from there the issue of profitability (ROI) as one more Marketing cost, or Sales, or Technology, or Logistics or….
The main cost of the Customer Care area comes from customer contacts. And customers often contact because something has happened to them because of the action of any area of the company: either they do not understand the product because it is not clear in the ads (Marketing), or the sales network has not explained it well enough (Sales), or it does not work correctly (Technology, Supply Chain), or it has not arrived in good condition or on time (Logistics), or they are worried about any message that has appeared in the press (External Communication ), or his demand has not been resolved correctly in a previous interaction (Customer Management) …
On these occasions what can be done is to assign to each area the load generated as a cost of its function, and put the means / objectives to their responsibles to minimize / improve it (after a detailed analysis of their root causes). This requires very good capabilities in the analysis of the customers’ interactions, and more importantly, the commitment in the Top Management of the company to involve all areas in the improvement of the Customer Experience. At the same time, the Customer Care Area must not ignore its contribution to problems’ detection, its analysis and the determination of solutions in different parts of the organization (including the Customer Area itself). This assignment of customer care costs to the different «originating» areas risks deriving in breaking down Customer Management and assigning part of it to each Unit or Business Area. Resist the temptation and don´t do that. Synergies will be lost and probably the inner strategy of each segment will differ as time goes by.
The other alternative, and I believe that the most effective to develop the full potential of the function, is to provide the Customer Area with its own P&L. In this way, it commits completely to the Company results, focusing its effort, apart from minimizing the costs of attention (a clear mistake many companies do when having it as the only objective with a poor and short-term approach), to generate growth and improve revenues. Objective: Positive P&L.
Costs side is almost always clear but, how is the revenue part of that P&L going to be generated? Well, clearly quantifying the different initiatives coming from the development and management of the customer base (cross-selling, re-positioning of customers, payment management, …), the generation of leads or new clients (inbound sales, telesales …), customer retention or even selling certain services (fee-for-service models, on-site assistance …).
The cross impacts between areas, which does exist, should not be forgotten, and they are not few. Thus, there will be Customer Service actions that generate profits in the Sales area, for example, by using a good after-sales service as a commercial storyline. However, I think we should not overcomplicate the ROI calculations if impacts are not very relevant, although it is worth knowing that they exist.
There is one last element (perhaps the most important one) that needs to be valued in regards to the contribution of the Customer Area and that has always been quite complex to calculate and even much more to defend when it comes to the distribution of the company resources. It is the financial impact of the Customers’ «Satisfaction». It has always been difficult to put financial numbers credible enough for the whole organization, but that does not mean that we should give up on the effort. Conceptually it is something difficult to argue, but quantifying it is a very different thing. A satisfied customer generates more income, directly or indirectly, than a dissatisfied one, either by greater consumption, longer customer life or greater promotion to its personal circle. It will be great if we are able to put some numbers around it to be able to assess our contribution. In the end we will have to compete for the resources with others that have a more direct and traditional calculation. And we have to come to that moment with our homework done.
The P&L of Customer Management is a key issue for the consideration and development of the function, and for the maximization of its contribution to the Company. Do not forget that in the company as in other parts of life, money rules, and so it must be.