Revenue Management is not solely about maximizing the value of a single transaction. The ability to accurately estimate the customer lifetime value (CLV) represents one of the most promising and profitable advancements in Pricing and Revenue Management. By quantifying the value of each customer and forecasting the probability of additional value drivers or costs, companies can evolve from a transaction focus to sustainable relationships that deliver long-term value.
Let’s explore the process for making customer lifetime value an integral part of your B2B Pricing and Revenue Management strategy.
Begin by Leveraging Data from Your Company’s Customer Relationship Management (CRM) System.
A discerning analysis of this data will enable you to accurately predict the CLV for each customer. To help derive the true potential of each customer, avoid only looking at annual revenues or contribution margin. A comprehensive analysis includes product mix, purchase frequency, purchase trends and cost-to-serve attributes.
Once You Have an Estimation of Customer Lifetime Value, Use That Value as a Customer Segmentation Factor.
Segmenting by CLV allows you to become more personalized and strategic on a specific transaction or terms and to your most valuable customers. More importantly, it creates a framework for increasing the worth of your lowest value customers. This enables compelling contracts for your sales team at profit margins that hit financial objectives.
Using customer lifetime value to evaluate a negotiated deal ensures that a long-term Revenue maximizing deal will be made even if certain components or products in the deal are sub-optimal. The results are what you’re striving for: improved profitability, sales growth, and eliminating unwarranted discounts.