How to Monitor Customer Value

11 January, 2013

How to Monitor Customer Value
In a previous article  we reviewed the process a business owner can undertake to develop customer value in their product and service offerings. This process included the review of attributes that were brought together to create the product and service. Now we want to develop a system that will allow a business owner to monitor customer value in product and services to ensure they are delivering on what was promised and obtaining the desired profitability.
In order to deliver customer value to meet the profit requirements of the business, the associated expected costs are to be kept under close scrutiny.
The expected costs can be broken down into three areas; the transaction cost, the life-cycle cost and the risk.
The transaction cost includes the total costs associated to provide the service or product to the customer.  This can include salaries of the employees involved, including, sales, customer service, and warehouse people. Other overhead costs, such as office rent, product costs including importing and duty, delivery costs, marketing costs and administrative costs are also included. In some cases many of these costs can be assigned to a product line or group of products to zero in on profitability for that business division.
Life cycle cost is costs directly associated with the entire life of delivering the product or service to customers. Costs such as research and development, procurement, marketing, any regulatory approval costs, product training, service training are included. Costs occurred after the product becomes obsolete or unavailable need to be considered such as inventory costs, warranty, service costs, the keeping of replacement parts for a number of years, costs to replace unavailable product with new product.
Risk is the associated costs surrounding business risk of keeping a product or service.
If the product is imported from overseas, there maybe extra costs associated with warehousing of the product to overcome long lead times or geographic disasters such as typhoons and earthquakes in the area of the supplier. There can be risks associated with market presence. If this product is new to the market, product margins may be higher for the first 120 days as competitors will not be able to respond. After 120 days there may be a product margin decrease that will affect the projected profitability.  There can be market trends that create risk. It could be a seasonal product so getting product to market is crucial so placing inventory orders several months in advance may be required thus putting a burden on cash flow. Product issues such as defects or dead on arrivals could increase warranty costs. Currency exchange rates for imports or exports must be factored into the risk analysis.
Monitoring customer value is crucial for a business owner. While not all costs can be kept under control, every effort must be made to minimize the risk to the profitability of the product or service offering. Market pressures will have be forcing the end user price down. By staying ahead of the risks and costs associated with the product or service offering, you can stay ahead of the trend and respond quickly to market pressures. Call us at numbersplus today. We can show you how to easily monitor and manage your customer value product and services and put more money in your pocket.
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