Zilliant recently released a new eBook explaining how companies can measure and maximize customer profitability with a new measure: Customer Lifetime Potential. Below is an excerpt from the book. Download the full eBook.
Customer Lifetime Value (CLV) is used to calculate the lifetime value of a new prospect to determine if the acquisition costs outweigh the overall value that the prospect will deliver. In other words, it measures the profitability of customer acquisitions.
What about after you acquire the customer – how do you measure the value of the ongoing relationship as a function of wallet share?
Customer Lifetime Potential (CLP) is a customer’s potential monetary worth relative to the expansion in breadth and depth of the relationship over time. CLP is a powerful business metric that helps drive what a customer will do – not just a forward-looking indicator. It is a guide for account executives to focus where it will pay the largest dividends.
It is a continuous ‘what else?’ indicator of a customer’s potential to maintain and increase spend – known as “Performance to Potential”. It is a strategy for holistic sales penetration by answering these questions:
• How has a customer’s spend changed over the past quarter?
• How much of the change is within new versus existing product categories?
• What level of spend should be expected and could be achieved next quarter?
• What “potential trajectories” will continue to grow a customer’s spend?
• What customers are beginning to defect or spending less in specific categories?
• What customers should I target for specific programs?
Businesses that measure, and more importantly, maximize CLP have a distinct competitive advantage. In today’s increasingly competitive marketplace, customers have more options available to them than ever before.
To continue reading, download the Customer Lifetime Potential eBook.