CUSTOMER CAPITAL:

Bain’s approach to measuring and managing the value of a company’s customer base

Are You Undervaluing Your Customers?, by Rob Markey, Harvard Business Review, January-February 2020

Earning customer loyalty is firmly in the interest of both shareholders and management. My research shows that loyalty leaders—companies at the top of their industries in Net Promoter Scores or satisfaction rankings for three or more years—grow revenues roughly 2.5 times as fast as their industry peers and deliver two to five times the shareholder returns over the next 10 years. Yet companies and investors continue to prioritize quarterly earnings over customer relationships, for three main reasons: Public-company financial disclosure rules and corporate accounting practices require little to no reporting on customer value; most firms lack the capabilities needed for managing it; and organizations’ traditional structure puts functional priorities ahead of customer needs.

How to Value a Company by Analyzing its Customers, by Daniel McCarthy and Peter Fader, Harvard Business Review, January-February 2020

The premise behind CBCV is simple. Most traditional financial-valuation methods require quarterly financial projections, most notably of revenue. Recognizing that every dollar of revenue comes from a customer who makes a purchase, CBCV exploits basic accounting principles to make revenue projections from the bottom up instead of from the top down. Although this may seem like a radical departure from traditional frameworks, that’s not the case: CBCV simply brings more focus to how individual customer behavior drives the top line.

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