One of the things that I find common across many
organizations, small or large, new or established, are members who know things.
And that is dangerous. I am not saying “knowing things” is wrong; let me
rephrase that: the danger is they think they know things. By that, I
mean it is not good when people know things because they heard it, or “everyone
knows that…”. They usually know their “facts” when pushed on these points because
someone told them. My guess is whoever told them also “knew” it because they
had been told the same thing.
For example, working for a subscription-based company, I was
told that customers with higher credit ratings had a higher customer lifetime
value (CLV) than those with lower credit ratings. This made sense. As a
subscription-based offering, those with higher credit ratings tend to be those
who make their monthly payments, so they must have a higher CLV. I took that
knowledge and moved on.
The problem was that a few months later, I was building
cohorts to run some regression on trying to predict how long members of each
group would stick around so that we could figure out the trigger for them
leaving and hopefully fix the pain point, thus keeping them. One of the
parameters I was using to slice up the different groups was credit rating. At
some point in the process, I ran a high credit rating group and a low credit
rating group one after another, and the results surprised me. The two groups
were statistically no different.
This got me wondering, so I started eliminating variables
until we got to rather large groups that had no real difference in credit. Lo
and behold, their customer lifetime revenue (CLR) was statistically the same. I
took this to the person on my team who had originally told me there was a
difference. She ran a similar test and got basically the same results. We both
took a different set of customers, though with similar profiles, to make sure our
pulls were not anomalies and once again, basically the same CLR.
This mattered because we all “knew” that folks with a higher
credit rating had a higher customer lifetime value (CLV), and we spent more to
acquire them. But if our cost of acquisition was higher for those with higher
credit ratings, and the CLR was the same, that meant the CLV for lower credit
customers was actually higher.
We took our findings to our boss. He said to check them yet
again. We did—same results. So, he had us put together a presentation summarizing
our findings, loading the SQL we had used for the pulls into the back so higher-up
analysts could pick holes in it, and he went and presented the finding to his
boss and his boss’s boss. He was met with the same skepticism that he had greeted
me and my co-worker with and that my co-worker had shown me when I first came
to her.
The higher-ups took the report and had more analysts look at
our data and do their own pulls—first with our queries, then with their own.
Finally, weeks later, we got a reply that things needed to change. The math
supported the fact that we were wasting money chasing the high-credit
customers. So, we switched tactics, and instead of offering acquisition plan A
for high-credit customers and plan B for low-credit customers, we would have
one offer.
Initially, we offered everyone offer B. But then I got
permission to create an offer C. Offer C was better than offer B but not as
good as offer A. We tested the offer on a subset of potential customers, and
the rise in take rates far exceeded additional costs, resulting in a very nice
ROI. At the end of the year, our team looked very good as we were able to
increase our customer base, lower our cost of acquisition, and show a very nice
ROI for the team as a whole.
But what if I’d never stumbled across this?
And this is my challenge to all the entrepreneurs out there:
challenge what you know. Look at how you know it. Did you get this information
from a new article? Even if the article wasn’t trying to be biased, does it
apply to your specific market? Did you get the information from a mentor or
someone who has been doing something similar for a while? How did they come by
the knowledge? Heck, even if you know this because you did some analysis at one
point, markets, people, and buying habits all change over time. Have you looked
again?
And don’t let my story put blinders on you. In my case, it
was a credit rating. Challenge all aspects of your business. How do you attract
customers? What might have worked at one time might not be your best option
anymore. How do you do your distribution? Maybe going directly to the customer
was good, but now there are better options or vice versa. How much does support
cost you, and is there now a more efficient way, maybe through AI? Markets,
products, consumer tastes, remote work, changes in technology, new competition,
and media mix are all constantly changing. What was a truth at one time may not
be now.
But also, do the math. Don’t just say, “I can lower support
costs by using AI.” Figure out what that means and a measurable way to track
results, and then….crazy here, track the results. And don’t forget end‑to‑end. Sure,
you may lower support costs, but if people are now churning or dropping your
product at a higher rate, do those losses offset any change in support costs? The
math can be simple, but trying to understand what variables to measure and how
to do so is often the tough part. But keep working at it. In the end, I believe
it will pay off.
Speaking of paying off, my dad visited a year or so ago, and
for some reason, he was going through my tool drawer of pliers and adjustable
wrenches and commented that I needed to get some large adjustable wrenches and
large channel lock pliers. I usually work on cars, and most things in cars
aren’t that big; plus, I thought I had decent-sized wrenches and pliers.
He shook his head, and we headed down to Harbor Freight.
There, we got some big wrenches and pliers. I can’t say these are the exact
ones we bought, but something like this for the adjustable wrench (18″
Jumbo Adjustable Wrench (harborfreight.com)) and like this for the channel
locks (12
in. High Performance Groove Joint Pliers (harborfreight.com)). I took them
home, threw them in the drawer, and forgot about them.
That was until Tuesday of this week when I noticed water
leading out of my garage. I tracked it back to the wall between the garage and
the house. On the house side are the hot water heater and the washer. I checked
both of those, but they were fine. I opened the panel to the water shut off for
the house and found my issue. My pressure regulator valve burst. Well, let me
admit, I did not know what it was and had to text a photo to my dad asking what
it was, and he let me know. So, I found the water shut off to the house at the street,
but I don’t have the exact tool you’re supposed to have to turn that but the
large adjustable wrench I had bought worked well enough. Then I had to come in
and get the PRV out and had to use both the adjustable wrench and the channel
locks to get it removed. If I hadn’t had those, who knows how much damage the
water could have caused and without the tools I couldn’t have removed it and
would be paying a plumber which would have been way more expensive than invest
in $60 worth of large tools. So, thanks dad, for the advice, identifying the
PRV, and talking me through the removal and install.