LCM: Lifetime Customer Margin.
There is lots of talk, mostly hype, about Lifetime Customer Value. When you look closely, it almost always means lifetime customer revenue.
Revenue is of little commercial value in the absence of margin, so the discussion is somewhat misleading.
Understanding the margin generated by customer segments, or in some cases, individual customers, is an immensely valuable metric. It enables you to focus activities where there is the most benefit to the enterprise. You can make both strategic and tactical decisions with a great level of confidence based on the margin delivered.
Customer margin is also an enormously useful metric elsewhere.
Salespeople are often rewarded on revenue, which can be gamed. Margin over time is much harder to game, and a far better measure of the effectiveness of a salesperson in delivering value to the enterprise. In any comprehensive key account management process, margin is one of the best measures of the impact of sales and marketing investments made.
Similarly, calculating the cost of acquisition of a customer gains traction when measured against margin rather than revenue.
One of my clients’ businesses relies on referrals as a major source of sales. Increasingly they are moving towards margin on converted referrals as the single metric that best measures the impact of their efforts.
It is proving to be a rewarding strategy.
Header credit: Dilbert and his mate Scott Adams.
