Make Friends With Your CPA
By Lisa Yorgey Lester
Here's a startling discovery: Your accounting department may know more about your customers than you do.
It knows, for example, how much your customers are buying; whether they're paying their bills on time; and what it costs you to market to them. The question then becomes: How do you, the marketer, get access to this information, and how can you use it to market smarter?
Activity-based Costing Furthers the Customer Relationship
Activity-based costing is an accounting term that assigns actual costs to specific activities, explains Kevin Rickson, senior director of CRM at Oracle Corp., an enterprise software company based in Redwood Shores, CA. For example, he explains, if a bank cashier takes two minutes to cash a check and is paid $30 an hour, then the activity-based cost of cashing a check is $1. If a customer cashes 10 checks a day, that customer costs you $10 a day.
Activity-based costing "gets to the heart of who are your most valuable customers, and then being able to invest in those customers who will give you the best ROI," says Rickson.
He provides the following example: You're a marketing manager for credit cards at a large bank, and are running a campaign promoting a new low-interest credit card to current customers. Your goal is to market to the 20 percent of your bank's accounts that are profitable; however, you don't know which 20 percent those are.
Marketing looks at the cost per acquisition and the cost to sell, but often that's where the calculation stops, Rickson points out. The cost of carrying that customer isn't computed.
With activity-based costing, you can determine the total cost for each customer. And because accounting knows the revenue each account brings in, you can calculate a customer's profitability. You also can look for ways to reduce the cost to maintain customers as well as ways to offer additional products to make them more profitable.
This information also can help you make other customers more valuable. "The most hidden cost in the customer equation is maintenance," says Rickson. "We often look at the cost to acquire a customer and the revenue they bring in, but how often do we look at the cost to maintain that relationship?"
Activity-based costing also allows marketers to find ways to increase the profitability of lesser performing customers.
Says Rickson: "Milking only the cash cow and not saving for a rainy day is short sighted."
By looking at the financial data, you can find where boosts in revenue come in, says Rickson. Unfortunately, this information still resides within the accounting department.
Integrated Marketing and Accounting Databases Enable Cross-selling
Information typically is spread throughout an organization, so often you can look only at parts of a whole. To get a true and accurate view of your customers, all databases must be integrated. Think of the number of departments in your company. Then, think of the number of databases that exist and how many pieces of customer information are segregated in separate databases. Each are individual stores of information, and department managers base decisions on only that information.
By using an integrated database, all departments can have access to all information. Accounting still sees its data in a relevant format, while marketing can view its data in a format that makes sense to it. Accounting can flag all profitable customers in the joint system, and marketing can use those records for its campaigns.
Once you have the ability to determine the lifetime value of your customers, says Rickson, you then can mine the data and do predictive modeling to find more "like" customers.