Managing customer profitability: determine which customers are most valuable to your organization.
Journal of Accountancy › Vol. 206 Nbr. 6, December 2008
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Managing customer profitability: determine which customers are most valuable to your organization.
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EXECUTIVE SUMMARY * The customer value management cycle presents a comprehensive model for measuring and managing customer value--it has five recurring steps. * Step 1: Manage Customer Segmentation. Customer segmentation refers to the process of dividing customers into groups for decision-making purposes. Segments should correlate to behaviors that drive customer profitability. * Step 2: Measure Customer Segment Margins. At a minimum, companies should measure revenue and gross profit by each customer segment. Allocating sales, marketing and customer service costs brings this analysis to the next level. * Step 3: Measure Customer Lifetime Value. The lifetime value of the customer reflects the present value of all expected future flows associated with the customer. * Step 4: Measure Customer Impact. Two critical sources of hidden customer value are customer influence and customer knowledge. Customer influence refers to the influence the customer has, either through intentional action or passive behavior, o...See the full content of this document
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