Great breakfast conversation with a friend this morning — CFO of a company having difficulty forecasting monthly revenues.
We’ll ignore in this post the obvious difference between difficulty in PRODUCING revenues and the difficulty in FORECASTING them (but that’s fodder for another blog post as lots of time what’s labelled as a forecasting problem isn’t really a problem with reporting its instead a problem with production).
In this case let’s just focus on thermal layering customers (and their associated revenues) into reporting/forecasting segments. These are the ones I like to use for subscription based customer/product sets:
New Customers – exactly what you think they are. Set some definitional parameters on when a “New” customer matures out of this category (e.g., 6 months or 1 year). New customers are valuable for growth.
Recurring Customers – this is the default category that a New Customer matures into. In most cases these are also your most valuable customers — make sure your recognitions, rewards and sales compensation plans reflect this (often NOT the case as companies chasing growth frequently bestow higher rewards on securing new customers than on retaining and nurturing existing ones — generally a flawed practice).
Recurring/Non-Recurring Customers – these are customers that we’ve seen before – and will likely see again – but for seasonal, product or competitive reasons seem to buy from us on some rhythm but not continuously. This is a critical category to track — and a category where customers are frequently lost in the weeds during down periods only to be reclassified as New Customers when they reappear again.
Lost Customers – again exactly what they seem. Just as with New Customers, set some definitional parameters on when a customer becomes “Lost” (e.g., no orders in the last 12 months).
Transient Customers – what’s left — usually those folks that are one-timers or only occasional subscribers.
Sales strategies, compensation plans and financial modeling should vary for each category.
Happy Forecasting. Cheers. Doug C.