Customer Lifetime Value
Robbie Baxter shares a video and transcript of this interview on subscription-based business with insights on how to quantify the value of customer relationships.
Revenue from loyal customers is more valuable than anonymous transactional revenue–it’s more predictable and more profitable. But until recently corporate valuations haven’t had a way to distinguish the quality of the revenue based on customer relationships.
Dan McCarthy, Assistant Professor of Marketing at Emory University’s Goizueta School of Business, is advocating for a new approach, known as “Customer Based Corporate Valuation.
I recently talked with Dan about why customer lifetime value is such an important and misunderstood metric, how to rethink the way companies are valued by the public markets, and what all of this means for subscription businesses.
Robbie Baxter: Can you explain customer based corporate valuation for the lay person.
Dan McCarthy: Customer base, corporate valuation at its most basic level is an enlightened way of forecasting a company’s future revenues, but driving that revenue forecasts off of what the customers will do. So hopefully it’s pretty intuitive that pretty much every major valuation method starts with some sort of a revenue forecast. And the main thing that we would say is every dollar of revenue has to come from a customer who’s making a purchase.
Key points include:
- Customer base corporate valuation
- Customer lifetime value
- The changing landscape of customer data
Read the full interview, How to Quantify the Value of Your Customer Relationships–An Interview with Professor Dan McCarthy, on LinkedIn.
Jayanth Krishnan provides an article that explains how the revised metrics of CLV2.0, inspired by jobs theory, reveals the limitations of customer lifetime value (CLV) metrics and provides better customer insight, consequently lowering your acquisition cost and creating demand.
CLV is a sound quantitative metric provided the data fed to it has a sound basis in customer’s fundamental approach to making choices. CLV2.0 is a revised metric inspired by Jobs theory, that addresses CLV’s limitations in addition to making growth and margin the lingua-franca of the whole organization.
Recap of the problem
CLV does not help you design or build a great product. It’s great for the nerds to crunch numbers and for C-suite to develop strategy. JTBD thinking is great to figure out customer needs, but it does not tell me which customer is valuable to the business.
We did the research
We went deep and researched the foundations of JTBD. We studied the behavioral psychology assumptions embedded in the theory. We studied the foundational ideas embedded in demand influencing theories and other alphabet soup theories surrounding the simple (but elegant idea) of Jobs.
We went meta. We looked at the philosophy of CLV, the different research streams into CLV including marketing science, finance, management science and what management strategy has to say on the topic. We realized that the foundations of customer lifetime value have long been forgotten in the frenzy that has followed big data/data science and computational prowess of contemporary Machine Learning (ML) methods.
Key points in this article include:
- The problem of biased data
- How JTBD theory addresses demand generation
- Who the formula helps
Read the full article, CLV.2.0 – Generating Demand, not Just Estimating Demand, on LinkedIn.
This timeless post from Andy Sheppard identifies the strengths and weaknesses of the six most common approaches leaders adopt when instituting change.
A leader has many options when determining what can be improved in their organisation (or organisational unit). The options for determining how to mobilise their organisation to successfully deliver the improvements are more limited. This question of how to change is also often an afterthought: leaders can find themselves well down one of these paths without considering the relative strengths and weaknesses of alternative approaches. Yet without considering how to deliver improvements, even the best of ideas may remain as just ideas: ideas that can leave the majority of an organisation bruised, bewildered but otherwise little-changed. The hope of this article is therefore to broaden awareness of practical options, so that different delivery methods can be evaluated as to how well they promise to meet an organisation’s needs. I believe that any change programme should only be chosen after evaluating the potential impact of different combinations of what and how. Although aspects of different approaches can be blended, I would suggest that improvement initiatives commonly follow one of these six patterns:
The six approaches are:
- The squeeze
- The action list
- The change events
- The vision deployment
- The narrow and deep redesign
- The skills deployment
Read the full article, Six Patterns for Leading Change: Which Ones Do You Recognise?, on LinkedIn.