How Do You Estimate Customer Value?

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Permalink Reply by Adam Hood on October 20, 2009 at 10:15am

We have done this for many clients. There are a couple of methods that have been successful. This analysis is much easier for mature, established businesses. Newer businesses or cutting edge companies make this analysis more guesswork than science.

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Permalink Reply by Larry Brauner on October 20, 2009 at 11:23am

Even with mature businesses it can be challenging. Accurate data may be hard to obtain or too insufficient to be reliable. When I worked for IDT Corporation, I merged customers into tenure-based cohorts (with or without stratification by credit score) and estimated churn-by-tenure from those cohorts. I also used cohorts to estimate bad-debt-by-tenure. Ultimately I used these rates in a net present value series.

There is however a reasonable rule of thumb that is derived in Managing Customers as Investments: The Strategic Value of Customers.... They show that expected year-one profit per customer times a factor between 1.0 and 2.0 is a fair estimate.

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Permalink Reply by Adam Hood on October 21, 2009 at 8:28am

Interesting. I assume by your reference to the book that it is one you'd recommend? Cheers

Adam


Larry Brauner said:

Even with mature businesses it can be challenging. Accurate data may be hard to obtain or too insufficient to be reliable. When I worked for IDT Corporation, I merged customers into tenure-based cohorts (with or without stratification by credit score) and estimated churn-by-tenure from those cohorts. I also used cohorts to estimate bad-debt-by-tenure. Ultimately I used these rates in a net present value series.

There is however a reasonable rule of thumb that is derived in Managing Customers as Investments: The Strategic Value of Customers.... They show that expected year-one profit per customer times a factor between 1.0 and 2.0 is a fair estimate.

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Permalink Reply by Larry Brauner on October 21, 2009 at 9:35am

I would only recommend the book if it has practical value for you either in customer analysis (for marketing or CRM) or company valuation (for investing).

What types of analysis do you specialize in? I'm also wondering how interested you are in social media?

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Permalink Reply by Adam Hood on October 21, 2009 at 9:49am

Our group specializes in CRM / Marketing Analytics. We are moving more and more into the social marketing space. We have successfully assisted a number of large clients with their social marketing efforts / measurement. We are eager to learn how others are doing analytics in the space. We see a lot in terms of basic analysis, but we are interested in pulling information from several sources and using that to make marketing and operational decisions.

Larry Brauner said:

I would only recommend the book if it has practical value for you either in customer analysis (for marketing or CRM) or company valuation (for investing).

What types of analysis do you specialize in? I'm also wondering how interested you are in social media?

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Permalink Reply by Larry Brauner on October 21, 2009 at 11:07am

I would like to introduce you to a woman who can help.

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