What is a customer-base audit and how can it help a firm?
We come at it from several different directions. One is an overall general desire to make marketing more rigorous, more transparent, and more respected. The idea of a customer-base audit, as the name implies, is ‘let’s make marketing more accountable. Let’s subject ourselves to the same kind of rigor as a traditional financial audit and be proud of what we’ve created with our customer base.’
Number two is a little bit more personal. Much of my research looks at customers at a granular level and projects into the future how valuable they’ll be. So the customer-base audit helps us get a good grip on our historical data before we start plunging into projections and forecasts. A lot of my recent work has been on the idea of customer-based corporate valuation. It goes back to the first point about let’s build a bridge from marketing to finance and hold ourselves to the same standards. The customer-base audit is a natural first step in this direction.
We’re trying to get more companies to disclose metrics about their customer base. We’re trying to get more investors to demand to see those metrics, to better understand how well companies are really doing, as opposed to relying on the ‘vanity metrics’ that they put in front of their investors and other stakeholders.
What can readers expect to pick up from reading this book?
A few things: Number one would be clarity about the role of a customer-base audit—specifically that it’s not just some kind of vague aspirational exercise. It’s something very tangible that every firm should be doing on a regular basis. Number two is we have a really solid, general framework rather than saying here’s a bunch of analyses for you to consider. We lay them out through five different lenses.
The first lens allows us to explore the behavior of all the customers that made at least one transaction with the firm in a given time period. The second lens enables us to identify the changes in buyer behavior from one period to the next that underlie the period-on-period fluctuations in firm performance. The third lens focuses on exploring how the behavior of a cohort of customers evolves over time, starting from their first-ever transaction with the firm. The fourth lens is the natural next step, exploring how one cohort differs from another in terms of, say, the percentage that remain active over time, their average order frequency (AOF) per period, their average order value (AOV) per period, and so on. The fifth and final lens sees us stepping back and considering the whole customer base as a sequence of multiple cohorts.
Why did you decide to write ‘The Customer-Base Audit?’
One of my co-authors [Hardie] and I have spent decades building a lot of complicated mathematical models of buyer behavior, and we want to get people to use them. We’ve been talking for nearly 20 years about needing this book as kind of a prequel to a lot of our technical work. Then we met co-author number three, Michael Ross. He’s a well-respected executive in the [United Kingdom] and a self-described ‘data agitator.’ By sheer coincidence, he has been doing a lot of this kind of stuff with a number of world-class companies, so it was inevitable that we would find a way to join forces to combine our skills and perspectives together.
It was truly a pleasure to collaborate with both of them, to bring this ambitious project to life. In the same way that Bruce and I found Michael, we suspect that there are many other top-notch practitioners out there who are already thinking and working in this general direction, but they need a clear road map and community to move ahead more boldly and effectively.
How can someone who is not a business leader benefit from this book?
While much of our message is aimed at leaders to help steer them in the right direction, much of it is also intended to empower folks lower down in the organization to keep doing what really matters, even if the C-level executives have been a bit dismissive about it. And for people outside the business world, there are a lot of stereotypes of what marketing is, and isn’t. A lot of people dismiss the whole field as fluff. Our hope is that ‘The Customer-Base Audit’ will convey the important message that marketing is much more of a rigorous discipline and merits just as much respect as finance and accounting, as well as a natural scientific curiosity about how customers behave.
