Article
Written by Mark Zwart
Posted on 05/11/2018

Why insight into the value of your customer base is invaluable

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The fact that your customer base has value is obvious. Because your company would cease to exist without customers, even if your product or service is innovative and unique. But do you have insight into (the evolution of) this value? And what do you risk if you don’t?

Everything can be expressed in numbers - the value of your customer base as well. The value of your customer base is determined by the revenue generated by groups of customers, which can be recognised on the basis of the purchasing characteristics of these customers.

Insight

The value of your overall customer base can tell you a lot about the financial health of your business. Information that you can then use to make smart choices and take targeted measures. For example, you’d obviously like to know which cash flows your business will generate in the future. And whether these are in line with expectations or whether adjustments are required to achieve your financial objectives. Your earnings, i.e. your customers, are crucial here. As such, it’s important to gain insight into the development of your customer base so you know how the value of your business will develop over time. 

Volume

It’s only meaningful to make statements about the value and evolution of your customer base once it has reached a certain volume. After all, it’s hard to tell how your business is doing looking at a handful of customers. If one customer is lost, the entire financial picture is skewed, and it’s impossible to derive meaningful information from it. As such, a larger customer base supplies more reliable - and therefore usable - data about the financial health of your business. 

The big picture

Information which is essential for mapping the value of your customer base includes the newly acquired customers, the existing customers that remain and those that are looking for a different supplier. This allows you to see at a glance which movements are taking place and what the net result is – and thus what the impact is on your customer base as a whole. If you for instance see that a lot of customers left over a certain period of time, it’s advisable to chart whether these customers have a common denominator and whether you can expect comparable customers to leave as well.  Conversely, a discount for loyal customers can stimulate customer retention. 

Risk

If you don’t pay any attention to the development of your customer base, you risk overlooking certain developments within your company. For example, it’s perfectly possible for your sales team to achieve good results and bring in a large number of new customers. But the big picture might show that existing customers are leaving en masse. Or you might discover that these new customers don’t purchase much. You also take a risk when you take measures without keeping the long-term effects in mind. For example, if you set up a campaign to acquire new customers but stop the campaign after a year because the costs appear to outweigh the benefits. At first sight, this appears to be a sensible decision. But let’s say that you sell subscriptions and reward each new customer with a tablet. This tablet could be an expense which – together with the cost of the efforts of the sales team – would lead to a negative result per new customer at the end of the first year. But the following year these new customers do not receive a gift or require a sales effort. Each customer that then extends means profit. If it turns out that 80% of the new customers extend their subscription after a year, it’s unwise to pull the plug on the campaign that same year because it’s not profitable in the short term. If the expense component disappears, the income figures will after all shoot up in no time.  

This example shows that smart choices can only be made if you have insight into the big picture of your customer base. If you don’t, the view you have of the financial health of your business may be incomplete, misleading or downright incorrect. And that would be a pity.