I want to share an experience that led to insights helping me and my clients provide value to target audiences.
About two years ago, I met with a CFO, "Avi," from a financial company. Our discussion topic - how to build customer value, knowing this reduces recruitment costs and boosts retention and referrals over time.
Before our coffee even arrived, Avi stated: “Customer value equals total benefits minus total costs.” He added - those claiming value can’t be measured simply don’t want metrics applied!
I smiled, this was complex. I took out a notepad to break it down.
Let’s start with benefits - can something like perceived value truly be measured? Total cost is easier - we can calculate expenses to serve each client. So if we crack total benefits, we can score the value provided. But must we measure everything? Without metrics, can we even discuss value?
We debated a few models:
Lifetime Value (LTV)
LTV calculates expected revenue from a customer relationship. The basic formula:
Average Income Per Customer Per Year x Average Customer Lifespan
More advanced LTV models consider acquisition costs, retention rates, and cost to serve.
LTV assists with:
- Evaluating customer segments
- Setting acquisition budgets
- Pricing/discounts
- Prioritizing higher-value customers
However, LTV has limitations:
- Relies solely on historical data
- Doesn’t account for strategy or market changes
- Doesn’t segment costs to refine decisions
Recency, Frequency, Monetary (RFM) Analysis
RFM segments customers based on:
- Recency - Days since last purchase
- Frequency - Total transactions
- Monetary Value - Total spend
Benefits include identifying high-potential customers.
However, RFM has flaws:
- Simplistic 3-metric formula
- No strategic alignment
- No cost considerations
Net Promoter Score (NPS)
NPS measures satisfaction via surveys, classifying respondents as:
- Promoters - Extremely satisfied
- Neutral
- Detractors - Highly unsatisfied
NPS is popular yet also conspicuously subjective - failing to quantify financial value.
In summary
While models exist to measure customer value, all have limitations. Value drivers like brand trust are tough to quantify. As life stays complex, so does this equation.
Still, insights help guide decisions. I’ll share an example - managing fertilizer products, landscape architects were key influences, yet didn’t purchase directly. I focused on building relationships and resources to ease their work. Though no formulas used, sales grew through the value provided.
As perfect solutions stay out of reach, blending empirical examination with wise intuition spurs meaningful connections. Quantifying recipient benefit balances technical modeling with empathetic artistry - acknowledge their mutual importance.
You are invited to arrange a telephone/online conversation at a time that suits you at this link and we will ask you smart questions😊
It is also possible to send WhatsApp to +972 52-420-3043 or send an email to benny.fluman@match-b2b.com