Part 4 – The Ultimate Guide Of How To Value Your Company: Customer Value
Jean put down the phone.
That customer was finally happy. It had taken all her people skills to help them through their issues, but the end result was positive.
Jean’s company had a great customer base, and sales were good. But was her customer base diversified enough?
Business owners often find it difficult to recognize when it’s time to prepare the company for transfer. It’s best to start the process with an examination of the six value drivers of any company.
Jean was working on improving her Strategic, Organizational, and Employee value. Now it was time to look at Customer Value.
What Is Customer Value?
Customer Value reflects on the health of the customer base.
When a company provides a product or service where customers receive benefits that outweigh the costs, the customer base is often very loyal. That loyal customer base then can translate into consistent revenue. Customer retention is critical to consistent growth and financial performance.
Jean knew that her customer retention was good and revenue proved that. As they rolled out their latest enhancements and app, she felt that her customer base would grow. But would they appreciate her new products?
Why Is Customer Value Important?
Within a small organization, it is not uncommon to find a disproportionate amount of revenue generated by a few clients. Having a diverse customer base means that the loss of one important customer is not catastrophic for the organization.
The number of repeat customers is a measure of the health of your business. It’s more costly to replace customers than to keep them. Repeat customers are valuable.
How Is Customer Value Calculated?
To gauge Customer value, buyers are interested in companies with a diverse mix of customers that keep returning to buy more product and are satisfied with your product every time.
Your company’s score is higher if:
- You have long-term customers with low turnover
- You have customers that buy from you often
- Your customers are satisfied with your product
Improving Customer Value
Improve this value driver by working with your management team and your customers.
Get Better At Keeping Great Customers
It’s more costly to find new customers than it is to keep and service your current clients. Every dollar spent to find a new customer is a dollar that you can’t invest in other business-building activities.
If your organization is scrambling to find new customers because the current customers aren’t buying again, you need to figure out why.
Diversify Your Customer Base
Your goal should be to reduce your top customer to less than 10% of revenue and your top 5 customers to less than 25%. Those types of numbers add value to your company.
When revenue is concentrated in one or two main customers, there is significant risk to the company. That risk lowers the value of your organization.
Increase Customer Satisfaction
High rates of customer satisfaction increase the value of your business. Great customer satisfaction reflects on the high value proposition and translates into higher customer retention and higher profitability.
It’s also important to have methods to collect customer satisfaction information. Buyers look for data when they consider a company, so processes that collect customer satisfaction statistics improve your overall Customer Value score.
Get An Exact Roadmap
Jean is continuing her journey to determine the value of her business. A great option for her is Forward Insights™. This evaluation gives her the data she needs to improve the value of her company through an Action Plan that includes increasing Customer Value.
Does your company rely on one or two good customers for the majority of its revenue? Are you struggling to find and keep great customers?
If so, the Action Plan provided through Forward Insights™ gives you the path to greater Customer Value and a business that is worth much more.
If your company is a leader in Customer Value for your industry, check out your strengths within the remaining Value Drivers with Forward Insights™.
Don’t forget to read Part 1 of this series: Part 1 of the Ultimate Guide to the Value of Your Business: Strategic Value. Part 2 and Part 3 of the series are also available: Part 2 – Ultimate Guide Of How To Value Your Company: Organizational Value., and Part 3 – The Ultimate Guide to the Value of Your Business: Employee Value.
Want to know more about the value of your company? Rest assured 35 years of experience is behind Management Insights™, Forward Insights™, and Expert Insights™ – the tools you can use to increase the value of your company.
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