Measure and Evaluate Customer Profitability Management

The following provides an indication of how Customer Profitability Management processes may be assessed:

• Customer Lifetime Value (CLV) e.g. customer lifetime revenue potential - lifetime costs = customer lifetime value. CLV is a measure of customer profitability over the lifetime of the organisation/customer relationship.

• Customer loyalty; seeks to measure overall customer loyalty. This may be presented as an index and used in conjunction with other leading measures such as customer satisfaction to predict market trends and assess current organisational performance. Customer loyalty can be quantified using an aggregation of loyalty measures such as repeat purchases, no. of different products purchased, relationship duration, and loyal customers.

• Customers – Loyal; e.g. (a) number of current customers not purchasing, or intending not to purchase, new competitor products as a % of total current customers, or (b) % of customers of particular duration or longer. This measure provides an indication of customer retention/loyalty. The first formula could be used where repeat purchases are not measurable due to the nature of the product or service offered. Typically this can be measured by survey.

• Customer Relationship – Duration; is the average duration of relationships of an organisation with its customers or, the duration of relationships with key/individual customers

• Customer - Projected retention; is commonly measured via surveys and is expressed as the ‘number of customers over the past year who intend to repurchase as a % of total number of customers’. This measure provides an indication of projected customer retention/loyalty and may be effective in the measurement of current customer satisfaction as opposed to measurements relating to customers already lost.

• Customers - Value of key customers; e.g. (a) value of total sales or contracts to key customers as a % of total value of gross sales or contracts, per period, or, (b) value of sales or contracts gained through referrals from key customer as a % of total sales or contracts. This is a measure of the performance of identified key customers, allowing the effectiveness of special relationship strategies to be assessed and refocused as necessary.

• Customer - Repeat purchasers; e.g. (a) number of repeat purchase customers over the past year as a % of total number of customers or, (b) Value of repeat sales as a % of total sales or, (c) % of purchases by current customers. This measure provides an indication of customer retention/loyalty.

• Customer account profitability; e.g. profit from customer account \ sales turnover of customer account. This is a measure of the value of specific customer accounts.

• Customer acquisition cost; e.g. average cost of attracting new customers. This is a measure of the cost involved in attracting or retaining customers.

• Return on investment (ROI); e.g. net profit before taxes \ total assets. This measure provides an indication of how well profits are being generated from use of the organisation's resources. A measure commonly used to compare performance between organisations; ROI is useful for assessing an organisation's competitive advantage. In this context it can be used to track the success of a CPM initiative.

• Market Share projection; e.g. projected % total market sales accounted for by company's products. This is a measure of projected market share, commonly used in setting goals or targets in new product promotions or when penetrating new markets with existing products.