Excellence in CLM Analytics : Opportunity Identification

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Quantiative analysis and modeling in marketing can be extremely complex and sophisticated. However, in day to day work most analytics managers do-not get involved in this exercise. The ideas that follow in this persuasion in that sense is foundational (a promise of this blog). Assuming data quallity (Garbage In Garbage Out, GIGO) isn't a problem let's dive into one of the several analytical techniques we will address in upcoming persuasions.

The topic of this persuasion is going to be Opportunity Sizing / Opportunity Identification.  

Purpose of Opportunity Sizing / Opportunity Identification:

The purpose of this analysis is to determine the potential gain from migrating your existing customers into higher (more attractive) segments/deciles. This type of analysis quickly identifies the most profitable customers and the potential value generated by migrating the customers via a value (revenue) based segmentation approach.

What do you mean by Deciles: In statistics the word is often used to divide a distribution of entities/individuals into 10 groups of the same frequency. For example you can split your customers into 10 equally sized segments based on revenue.

How do you size the opportunity based on Declie Analysis?

Once the customer base is split into revenue deciles you can estimate the upward migration as a result of Marketing or CLM by quantifying the value of upward migration.

Here is an example on how you could go about performing the analysis:

Step 1: Determine the Baseline Spend per Product Line Account or User:

In my example, I work for an Asset Management firm. Each account holder has a value associated to his account. I can go about splitting my account base into 10 equally sized segments by revenue. Let's say I have 100K accounts. An output may look something like this:

Step 1: Establish BaselineStep 1: Establish Baseline

Step 2: Show Impact of Segment Migration (by making reasonable hypothesis):

Now if I were to show the impact of CLM Analytics then I could potentially assess that I could increase the revenue of my top decile by 25% and migrate my other customers to next highest spend decile.  Based on this assessment, my average spend goes up from $335 per customer to $583 per customer.

Step 2: Opportunity Sizing Using Decile AnalysisStep 2: Opportunity Sizing Using Decile Analysis

 Step 3: Perform Economic Value Analysis (to justify Marketing Spend or Incremental Budget):

Step 3 Economic Value AnalysisStep 3: Economic Value Analysis

(Note 1: I have used Average Annual Spend and Account Value above interchangably)

(Note 2: Sales Transaction Amount represents the Current Sales Numbers)

What you have to believe (and sell) to your management based on the above analysis:

-Customer Lifecycle Management initiatives via targeted initiatives (cross-sell, up-sell, merchandizing) will improve the average sales per customer.

-While our customer base will grow at a compound annual growth rate of about 9% (We get this by looking at the number of accounts we have now, 100K and project the number of accounts we will have in 5 years, 150K)

-Our annual revenue will increase between 40% to 70% via CLM initiatives.

Net, net, and as a general rule you START with the Baseline, ADD Internal (Organic) projected growth to project your future (2015) Revenue. Finally, INSERT your CLM value proposition (based on above analysis) to show the (projected total 2015) Revenue opportunity.

It's budget season so good luck in getting your asks approved!

The answer to my original question, what you need as an analyst. Ideally, being trained as an Engineer with an MBA with Sales experience would help on paper but in the end, it's common-sense that will really count (and matter).

Now, your turn how do you go about pushing the value proposition of your marketing or CLM efforts?