When you start measuring and managing customer value you want to look at some specific metrics. You will want to develop a metric that will not only measure customer lifetime value (CLV) but will also measure the rate of change of that value, and will take into consideration not just the short-term revenue that a customer provides but also the long-term equity that a customer builds. We believe that the Return on Customer metric, which is the subject of our last book, is a good metric to use for this purpose.
You will also want to develop a business management tool that helps you to think about how to evaluate your own success and the success of those who work for you. For example, if you have people reporting to you, instead of having them be responsible for just selling a certain number of widgets within a certain period of time, you could use the Return on Customer metric to make sure that your staff is actually building long-term value while they're making current revenue numbers. This provides you with a way of holding people accountable today for long-term value while giving them credit for their short-term successes.
The third thing that you want to think about when you're developing a customer equity strategy is your business philosophy behind it. If your goal is to increase your customer's value in order to increase the value of your company then you need to become so valuable to the customer that he or she will become more valuable to you. This means taking the customer's point of view, anticipating her needs and taking her best interests to heart. In the context of creating profits for your shareholders, you need to make sure you are being as valuable to customers as you can be by treating them as fairly as you'd want to be treated.
Hear more in Creating Customer Value, a SearchCRM.com monthly podcast series with Peppers and Rogers.
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This was first published in December 2007