The Four Elements of Customer Value

Far too many marketers overlook the fact that cultivating a customer base means tracking the behaviors of those customers for … well, forever. The time spent building a relationship with a given customer should optimize all phases of that customer’s life to maximize value and ultimately generate revenue. Translated, that relationship doesn’t just end. It takes a business lifetime to ensure your customers stay your customers.

Debbie McGee, senior consultant for Dallas-based David Shepard Associates, suggests measuring customer value in terms of four unique elements:

1) Realized value: profits already received and used as points of comparison (for measuring period-to-period performance, for instance)

2) Expected value: the expected profit received from selling existing products plus the expected revenue from, among other things, upsells and cross-sells

3) Lifetime value: the realized value plus the expected value

4) Potential value: lifetime value plus future profits to be generated by products that have yet to be marketed.

Of course there is no formula to gauge customer value precisely, but looking at specific test results and business models will reflect returns on individual promotions. “It is important that you make sure product marketing strategies are focusing on the highest value customers for that product,” McGee says.

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