Client Relationship Lifespan
There is a 400 days survival period before considering that client's relationship is dead.
It is reasonable to assume that your client's relationship lasts for some time after sending the last invoice. Endless debates exist to determine precisely how long the relationship might survive.
We made a clear choice to make relationships comparable to provide the most realistic view of your clients' relationships.
In an ideal world, the relationship survives one year after the last invoice. If you sent no invoice to a client over the previous 12 months, and if there is no prospect of coming revenue over the next 12 months, then the business relationship is dead.
One year is also a pragmatic number. It allows us to explain the variation between the current performances and last year's performances—the variation in the portfolio is often the principal explanation for sales deviation.
Strictly applying the One Year rule generates results that are not necessarily reflecting reality.
In an ideal world, the business relationship survives one year after the last transaction if there is no revenue perspective.
Our B2B services businesses (digital agencies, consulting firms, software development) require some flexibility into the equation since most of us seek to generate recurrent revenue.
Here is an example. Imagine a digital agency providing a web-hosting service to its clients. The company bills the service annually.
If we strictly apply the year's rule:
- We would be alerted that this client is leaving the portfolio 11 months after the last invoice. It is not necessarily true that the client is churning.
- The client would be marked lost on the day after the anniversary date of the contract. The client is not necessarily lost neither.
Reality demonstrated that sometimes billing processes can face issues and delays. Therefore, kopilot grants a 35-day grace period after that One-Year survival rule.
That just-over-a-month extra is a buffer to match the reality of internal processes. That buffer provides room for adjustments. Plus, you are not alerted too soon in the process.
365 days + 35-day grace period = 400 days. kopilot waits for 400 days without any transaction before marking a client as lost if there is no revenue perspective.
A lost client is a client for whom there was no transaction issued for 400 days in a row and without revenue perspective at that time.
Luckily, you might expect revenue from that client at some point in time. We encourage you to plan that income in kopilot as soon as there is a probability it could become real.
The app treats the case as a new business relationship, meaning that a fresh client lifecycle starts. The benefit consists of not distorting the statistics (and the reality) by keeping the relationship aligned with reality. A client would have multiple (short) relationships if you invoiced it years ago and recently again. We would never consider it as one business relationship lasting for years.