What can you do as a business leader? Here are the 7 steps to getting started with the ideas and apply the ideas of NPR in your business:
- The starting point is transaction data. Collate customer-wise transaction data for the past few years.
- Calculate Customer Lifetime Value (CLV) for these customers. Remember that CLV mentioned here is predictive and forward-looking.
- Plot the CLV-Customers chart and see the power law at work
- Based on this, you can calculate the Predicted Revenue – the aggregate CLV for all present customers
- By factoring in loss of revenues due to expected churn and additional revenue via new customer acquisition, you can get the Net Predicted Revenue (NPR)
- The next step is to apply the ideas of Velvet Rope Marketing (VRM) to grow revenue from the Best Customers, get some of the Rest and Test Customers to become the Best, and acquire Next Best Customers who are likely to have a higher CLV (see graphic below)
- Set up a process by which the CLV and NPR calculations are automated and available periodically to all decision-makers.
Through these actions, you can now view in near real-time the impact of the marketing activities on a forward-looking basis through the lens of customer actions. NPR should thus become the single business number to discuss strategy and drive new initiatives.
These are ideas which can be applied to every business in every industry. By calculating NPR across time, one can see the impact of customer-centric initiatives. NPR thus allows vendors to become partners because the impact of each action can be measured, and thus gainshare models can be applied to customer acquisition, retention and development. For the first time, business leaders can get a measurable marker for future profit growth. The CLV-VRM-NPR triad is the path for every business leader to rise to the most important position in today’s challenging times – becoming the CPO (Chief Profitability Officer).