Revenue calculations for marketing...no CFO needed!

Resolving the Finance-Marketing Debate on Customer Value

For decades now, there have been debates between the finance and marketing departments on how to measure the profitability of a customer. Every time the marketing department or MCIF provider comes up with a calculation to estimate how much profit an account or a customer generates, the finance people say that the number is over-inflated or under-inflated or doesn’t allocate the appropriate amount of overhead to each customer.

The truth of the matter is that the debate is unnecessary. The focus of marketing should be to generate revenue by bringing in new account holders or getting existing customers to utilize additional accounts and services. While it’s essential to be conscious of the cost of the account opening channel (online vs. branch, for instance), the overhead isn’t a factor that can be controlled by marketing, so it’s less relevant in the calculation. Although often used interchangeably, it’s more accurate to say that the goal of marketing is to bring in customers who generate revenue instead of profits.

When dealing with existing customers, the relative revenue of the customer or account is often more important than the actual dollar amount of the revenue or whether the customer is profitable. The main reason to determine whether a customer generates a lot of revenue, some revenue, or little to no revenue is so that you’ll know how and what to communicate to the customer. Putting customers into revenue segments is necessary to make this actionable.

For example, suppose customers are in the high revenue group. In that case, they should be communicated about relevant topics to them—often enough so they feel valued to ensure they don’t leave. Customers in the medium or low-revenue groups can be profiled to see if they can move into the high-revenue segments. If the potential is there and product need exists, they should be communicated about additional products/services that are relevant to them. Customers in the low/no revenue group that don’t have much potential for anything extra can be communicated to much less frequently using lower cost channels to allocate marketing resources elsewhere.

The Clarity of Revenue Segmentation in Customer Valuation

The added benefit of using revenue segmentation is there is no debate on whether the calculation is correct or not. The segmentation is based on the relative amount of revenue; the customers being in the top third of revenue generators means they are in the high revenue group, so the actual dollar amount is unnecessary. In the end, every for-profit company can agree that customers who generate revenue are what keeps the company in business—and should be the focus of that business.