"The true value of a customer may not be obvious at the outset of the relationship," said Linda Popky, president of Redwood City, CA-based strategic marketing firm Leverage2Market Associates. "Many customers start out as small purchasers but buy significant volume from a supplier over time, which may be years or even decades.
"It's important to consider the potential lifetime value of a customer when developing customer service and support programs, as well as promotional initiatives. A customer who becomes tied to you and your offerings will not only increase your bottom line over time, but since they are buying from you they are also not lining the coffers of your competitors.
"Furthermore, a long-term customer is usually both less costly to support as well as less price sensitive. Extremely loyal customers often become outspoken advocates for your product or service and help convince other potential buyers to purchase your offering—in effect becoming your best salespeople.
"Finally, it's important to understand that not every customer relationship is profitable. On a regular basis, businesses should analyze not just how much revenue each customer is worth, but how costly it is to support and service that customer. Knowing the true value of a customer makes it easier to decide not only where to focus your resources but also which customers are costing you more than they're worth and should be fired."
Dr. Maynard Brusman is a consulting psychologist and executive coach and member of the Society of Industrial and Organizational Psychology. He is the president of Working Resources, a boutique strategic talent management consulting and leadership coaching firm in San Francisco, California. www.workingresources.com He offers a few insights:
"The development and retention of profitable customer relationships is critical to the health and growth of every business. Companies need to be concerned with the future revenue and profit streams associated with the satisfaction and retention of their core customers. Retaining the right customers has a strong impact on an organization's profitability. Profits over time from referrals, reduced operating costs, and increased purchases need to be calculated."
Dr. Brusman notes, "Successful customer-focused companies learn everything possible about their customers. They create a comprehensive picture of each customer's needs—past, present and future. They use these customer insights to guide product and service decisions. Customer information is used as their basic strategy and organizational structure."
Gary W. Patterson, the FiscalDoctor® and enterprise risk management expert in Atlanta, GA, is still surprised by how few companies really know their most profitable. Business leaders still ask some version of this question: "If you find out who our 10 most profitable customers are, could you please let me know?"
If you can not consistently, reliably, and quickly obtain this information due to accounting or system limitations, the short-term answer is to throw bodies at the problem. Sometimes the mid-range solution is to get the right eight people in a room for a day and see what information is needed and how it can be delivered. That can initiate the process to obtain needed information and help clear red tape for management and their teams.
"As a global business consultant and former VP of Operations of a mid-market manufacturer, I've found that there are few higher priorities than understanding and assessing the true value of your customers—especially in today's new normal business environment where sales are lackluster and margins are tight," points out Lisa Anderson of LMA Consulting Group, Inc. in Claremont, CA. (www.lma-consultinggroup.com). "A few strategies to assess value include: 1) Find out the customer's impact on profitability. 2) Ask your sales, customer service, operations and logistics resources about hidden costs and benefits of the customer. 3) Look for processes which are dedicated to supporting the customer."
Weiss concludes, "It's easy to pay lip service to customer-centric values, place them on the walls and in the annual reports. But they need to be in everyone's hearts and minds."