You probably wouldn’t want to evaluate your friends or loved ones in these harsh terms, but business is business, so you should be carefully analyzing the true costs and benefits of each of your clients and customers. Thomas Sweeney, director of research at the Service and Support Professionals Association, describes the concept of LTV (Life Time Value), and says: “An assumption that a company that buys $1 million in product is a good thing may be misleading if that company is going to cost the company $5 million to support. Value is predominantly measured in terms of financials, but the impact of the intangibles must be factored in. Investments to acquire marquis accounts, or to win market share, may run counter to LTV analysis, but may yield long-term marketing advantages that need to be factored into LTV analysis. This gets tricky since the expected marking value is based on assumptions that may be difficult to quantify.” The next step? “Once you begin to get a handle on the LTV for particular customers and customer segments, you can begin to formulate strategies to maximize the value of a customer relationship. For example, one segment may indicate high profitability, but very short relationships—what types of action plan can you put in place to extend the lifetime of these profitable relationships?
You may also see that some segments are losing money: Perhaps it is time to raise the price for the product or maintenance.” The main point is that you won’t know if a customer relationship is adding real value to your business until you take the trouble do a careful, comprehensive analysis of the true costs and benefits of that relationship.