Boost your bottom line: consider your Customer’s Lifetime Profitability
- Grow the number of profitable customers in your base
- Build your Customer Lifetime Profitability capability over time
- Continually improve to stay ahead of your competitors
As markets become more competitive, the pressure to grow profits more efficiently increases. Managing customer lifetime value and profitability drivers can benefit your customer and accelerate profit growth.
Customer Lifetime Profitability is a measure of the underlying profit of an organisation’s customer base, considering the future revenues and costs for the lifetime of the customer.
By implementing a Customer Lifetime Profitability model, an organisation can focus it’s spend and effort towards growing and managing the most profitable customer segments and customers.
Grow the number of profitable customers in your base
Many organisations do not have an accurate understanding of which customers are profitable and unprofitable. Organisations that do are able to deploy strategies to acquire and retain more profitable customers, and increase the profitability of customers that are low or loss making. These organisations achieve profit growth more efficiently, retaining more customers and spending more effectively.
By taking a customer-centric view to managing the revenue and cost base, organisations can make decisions based on customer need and deliver ‘good profits’ derived from improving customer experience and advocacy. This means investing in what matters most to customers and at the same time removing or improving processes that frustrate customers and cost the organisation money. These organisations will be rewarded with better customer outcomes as well as improved profitability.
Build your Customer Lifetime Profitability capability over time
Benefits from implementing the capability to manage customer profitability can be realised progressively. The ability to measure profitability does not have to be implemented all at once, nor do organisations need to wait until implementation is complete to realise the benefits. A progressive implementation approach is recommended to optimise outcomes and reduce risk.
Analysing and allocating the processes and transactions that are driving profitability will create an initial view of the profitability of customers. Once the profitability model is built, profitability analysis will inform the prioritisation of actions to optimise profitability across the customer base.
As actions are being implemented, it is important to measure the benefits being achieved and understand variances to the target and the baseline.
Continually improve to stay ahead of your competitors
Once Customer Lifetime Profitability measurement has been implemented within the organisation, the focus should be to continuously optimise and manage issues utilising this model as they arise. Feedback from customers and the business will inform opportunities for further profit realisation.
Outcomes from this model include:
- improved profit return on the customer baseimproved investment decisions
- greater organisation productivity
- improved customer satisfaction and advocacy
On implementing this model, competitors are likely to follow your lead. It is important to continue to set the pace, and ensure the strategic goals, operating model and measurements are aligned to increasing the value of your customer base faster than the rest of the market.