Recognizing and measuring customer value is an essential part of sales and operations strategy.
Revenue generation is a primary focus for many businesses because rising sales make companies look like they have momentum. For investors, revenue is visible, measurable and closely tied to growth. The problem is that revenue tells you how much business a customer gives you but does not equate directly to value.
As the CFO of a financial services company managing a large portfolio of leases and loans, I’ve seen this lesson play out repeatedly. Two customers can generate similar amounts of revenue while producing very different economic outcomes. One pays according to schedule, operates within standard terms and requires relatively little intervention. Another generates late payments, collection activity, servicing demands, exceptions and greater credit exposure. On a revenue report, those customers may appear equally valuable, but the first generates significantly more value than the other.
The same dynamic exists across industries. A manufacturer may absorb engineering changes and short production runs for one customer, while a software company may spend hours supporting an account whose subscription revenue barely covers the effort. A distributor may make frequent, uneconomical deliveries, and a consumer business may discover that a seemingly attractive segment has unusually high return rates. Many younger businesses view revenue and sales as universally good, but the simple fact is there is better revenue and complicated or costly revenue.
Most businesses are better at measuring product economics than customer value . The costs associated with an individual account are often scattered across the organization.
Source link
