How SundaySky’s finance team performed a client analysis to evaluate strategic business growth plans.
At SundaySky, our finance team took a step back to look beyond traditional financial statements and metrics in order to help us better understand our business dynamics and core competencies. The results completely changed the way we do business.
As a rapidly growing video-powered experiences company, a lot of what we do veers away from tradition, so it’s not surprising that traditional metrics fell short when it came to understanding how to evaluate our business. Our finance team realized the focus on common financial metrics didn’t provide the complete picture needed to guide decisions regarding resource allocations, the strength of our pricing model, and our potential growth. To solve this problem, we took a deep dive into our customer base following the steps below.
Step 1: Gather the data.
Our first step was a thorough P&L analysis for every client, with a focus on the path to profitability. We didn’t just look at the financials, but also the amount of time and resources invested from each of our departments on each client. We gathered data from every team to garner an understanding of the time invested. How much time did customer success spend on a client? What about the integration team? And how did the time invested correlate with the revenue stream created? Not all teams track the time spent on each client, but we were able to create a basic understanding of the cost associated with each.
Step 2: Determine the ideal customer.
When we looked at the numbers, we noticed that something was missing; profitability alone was not enough to evaluate our clients, as there were many aspects that are not being taken into account when looking at the financials. We went back to the drawing board to define the ideal customer as we see it, and which indicators could help us rank the non-financial aspects. For example, an engaged customer could be less profitable, but is more likely to expand — how can we measure each clients’ level of engagement?
Step 3: Look for trends.
Armed with this data, we launched into the analysis, looking for trends in the actuals in prior years for groups of clients, whether by vertical, segment, or product type. We looked at commonalities between our top clients and the ones at risk, and between any of the groups we sliced. Slicing and dicing this data helped us arrive at conclusions, such as which was the most profitable vertical.
Step 4: Strategize for success.
Our trends analysis also led to some unexpected insights. Perhaps the most important was the realization that our ideal client isn’t necessarily the most profitable one. In fact, the most profitable client can be at risk for churn, in part because we’re not investing enough effort. In other words, a client that doesn’t, on the surface, appear to require a lot of investment can equal a client at risk. This was a new approach to churn analysis, which often provides a limited point of view. A cross-functional, client-by-client analysis gave us the new insight we needed.
Step 5: Communicate across departments.
Our findings led to the realization that teams were operating in silos. We have a very experienced integration team, so they always had a good understanding of client engagement, but the missing piece was client profitability. Similarly, the finance department knew the financial KPIs for each client but weren’t aware of the engagement levels. Sales people, of course, were aware of expansion opportunities, but other departments were not. Connecting the dots across departments helped us create a Client Health Score. Once we had a holistic ranking method that unified our view on our clients, we were able to look beyond the numbers and get valuable insights.
The strategic role of the finance team.
One of the most striking findings is the need for finance to tell cross-functional stories. Our analysis helped the customer success team gage which clients needed a higher level of investment. It helped the sales team target prospects with better chances of success. In terms of product development, we invested more in our platform and capabilities in order to make the work easier for our clients. Most importantly, getting a deep understanding of our customers, while considering their value across all functions in the company, is now used as a tool when evaluating new strategic paths.
Building these models helped us better understand the business. Our work is ongoing, but continues to inform decisions across the company.
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