MAXIMIZING CUSTOMER LIFETIME VALUE:Ultimately, marketing is the art of attracting and keeping profitable customers.
Yet every company loses money on some of its customers.
The well-known 80-20 rule states that 80 percent or more of the company’s profits come from the top 20 percent of its customers.
Some cases may be more extreme-the most profitable 20 percent of customers (on a per capita basis) may contribute as much as 150 to 300 percent of profitability.
The least profitable 10 to 20 percent, on the other hand, can actually reduce profit between 50 and 200 percent per account, with the middle 60 to 70 percent breaking even.29
The implication is that a company could improve its profits by firing its worst customers.
Companies need to concern themselves with Return on Customer (ROC) and how efficiently they ere-ate value from the customers and prospects available.30
It’s not always the company’s largest customers who demand considerable service and deep discounts or who yield the most profit.
The smallest customer pay full price and receive minimal service, but the costs of transacting with them can reduce their profitability.
Midsize customers who receive good service and pay nearly full price often the most profitable.