In a competitive marketplace, simply winning customers is no longer enough to ensure healthy profit margins. After payroll, travel and expenses are the second largest expenditure for any business, and in the global B2B environment where sale cycles are typically long and Customer Acquisition Cost (CAC) high, CFOs need to look at better ways of measuring and forecasting spend in order to optimise ROI. Especially when you consider that a normal company spends at least 10% of their total operational costs on travel.
The challenge does not stop there – Customer Acquisition Cost is just the tip of the iceberg. Only by measuring spend across the entire customer life cycle – from pre-boarding, gifting, travel and account management, right through to offboarding – can finance leaders really assure themselves that the revenue generated from any customer is always greater than the company’s spend on acquiring, retaining and growing their business. The most important point of view is the Total Cost of Customer.
The million dollar question that keeps CFOs up at night
What makes cost visibility more critical is that more people are travelling for work than ever before, and according to the Global Business Travel Industry (GBTA), the travel industry raked in an astounding $1.3 trillion in 2017 alone.
Of course you have to spend money to make money, and nowhere more so than in the corporate business world. However, what if that non-reimbursable investment doesn’t pay off? That’s the the million dollar question that keeps many CFOs up at night. The fact is, businesses don’t have a means to measure this right now.
Act on intelligence, not instinct
Taking travel and expense (T&E) spend as an example, most companies will still allocate a hard budget for the year, often with the sales team getting the majority share. The problem with this approach is that these budgets are often based on historical data, providing a rough guide for expected spend at best. This is opposed to an accurate picture of the true cost of customer – the amount spent throughout the entire customer lifecycle from prospect to customer and beyond.
The result is that businesses are left with significant blind spots where it is almost impossible to accurately assess ROI on their spend. This is a problem that goes right to the heart of organisational planning, leaving the finance department with no choice but to act on instinct over intelligence.
Prioritising customer spend
So where do we want to be? We want to be in a position where CFOs can predict spend as well as they’re able to predict the sales forecast. With this, they’re able to prioritise spend by budgeting and tracking spend according to the impact it could have on their bottom line.
By being able to marry together isolated pieces of information into a complete picture, CFOs can act on intelligence, knowing which customers are worth investing in further, and which sales opportunities their company should step away from.
Performance does not necessarily mean productivity
Another aspect of customer cost that many fail to recognise is this: performance does not necessarily mean productivity. If your top sales performer converts a £500,000 opportunity but costs the company £100,000 in travelling back and forth along the way, their actual level of profitability is not as high as it first may have appeared.
In this instance, performance perceptions can be deceiving and can create significant disparity around projected vs actual profit, potentially leaving your organisation with a bottom line that is far less healthy than it originally appears. It’s a consideration that certainly adds more weight to the case for making sure your business knows its true cost of customer. And by making your team aware too, you can create and reward those spend-savvy salespeople who take care of your bottom line.
With the right technology in place, integrated with a company CRM, business leaders need not have a blinkered view of customer cost and will be able to fluidly allocate and amend T&E budgets as customers progress along the life cycle, all the while protecting profit and reducing risk.
As with many business challenges today, the key to achieving alignment between customer spend and customer cost lies in the ability to make informed decisions off the back of holistic, real-time operational data that provides finance with an ongoing ‘single source of truth’.