Category: Financial and Management Accounting

Calculating the Economic Value of Customers to an Organisation

November 2002

Download in Adobe Acrobat format

Calculating the Economic Value of Customers to an Organisation

File Name: FMAC-2002_Article_Award.pdf

File Size: 230.94 KB

Three case studies from Australasian service organisations explore the economic value of customers to an organisation (EVCO). Customer lifetime valuation, a form of discounted cashflow analysis, was used in two of these organisations. Customer profitability analysis, a form of activity-based costing, was used in the third. Insights arising from the measurement of EVCO changed the management of customer relationships - new pricing strategies were introduced and loyalty and product cross-holdings were rewarded, for example. It is interesting that there was little or no involvement by the accounting function in the calculation of EVCO.