Definition

customer valuation

In customer relationship management (CRM), customer valuation is a scoring process used to help a company determine which customers the company should target in order to maximize profit. Customer valuation requires that the company evaluate past data to learn which customers purchased recently, which customers purchased frequently, and which customers spent the most money, in hopes that the company can forecast future purchase potential and make sure time and resources are spent only on its best customers.

To understand how customer valuation works, let's imagine there is a company that manufactures skateboards called CoolSkate. CoolSkate's sales are made primarily through Internet and print catalog sales. Through surveys and questionnaires on their Web site, CoolSkate has accumulated quite a bit of data about the buying habits, preferences, and age range of their customers. With this data, CoolSkate will devise a customer valuation scoring system that awards points based on total purchasing dollars, repeat purchases, and customer loyalty. CoolSkate can then use the information gained from the customer valuation scores to predict repeat-purchase probability as well as the probability of attrition, and target their promotions to customers who are likely to make new purchases.

Customer valuation is based upon the 80/20 rule in marketing, whereby a company spends the majority of its time working with its best customers. There are many software applications on the market to help companies determine a point system relevant to their products or services and combine aggregated data to determine customer valuation.

This was last updated in March 2007
Posted by: Margaret Rouse

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