September 24, 2009

OMS: A KPI For You, Customer Asset Value

Let's do something nuts with our spreadsheet (e-mail me here to obtain your free copy of the OMS 240 Segment Simulation Spreadsheet).

Go to cells C6 - G6, and type in the number 0.00 in each cell.

This means that there will be no customer acquisition in each of the next five years.

Now look at the sales numbers in C13 - G13:
  • Year 1 = $62.6 million.
  • Year 2 = $50.5 million.
  • Year 3 = $40.9 million.
  • Year 4 = $33.7 million.
  • Year 5 = $28.4 million.

Looks like customer acquisition is pretty important, huh? How many times have you been told that if you just fix your loyalty program, everything will be fine?

But maybe more important is this interesting metric.

  • This business generated $80.0 million last year.
  • Over the next five years, this business will generate $216.1 million from the existing customer base.

Your customer base is an asset, in this case, one worth $216.1 million in the next five years.

Some companies calculate this metric (five year sales value of current customer base, what I call the "Customer Asset Value", or "CAV") on a weekly/daily basis, allowing them to see how marketers and merchants positively/negatively impact a business --- in ways that go way beyond conversion rates.

This is a KPI every company can calculate. Ask your Web Analyst to calculate this metric for you. Ask your Business Intelligence Manager to calculate this metric for you. Ask me to calculate this metrics for you!

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