CPMC Framework

Customer Profitabilityby Liz Murby

The framework, known as Customer Profitability Management Cycle (CPMC), offers guidance on how to analyse, measure and manage customer value to support the implementation of strategies that increase this value and thereby improve shareholder value. The CPMC is designed to give all companies, from those just starting to measure customer profitability to those with well-developed profitability models, insights that can help them to sustain effective profitability management strategies. Step 1: manage customer segmentationAll customers are not the same.

The first step in the CPMC is to split your business’s customer base into segments and, as the profitability cycle matures, assign a value to each segment. Companies generally use segmentation in order to serve customers’ needs better, categorising customers according to personal characteristics, preferences or behaviours. But, in order to maximise their value as assets to the company, customers should be segmented according to their profitability.

The value they provide arises from a combination of three sources:

Customer margins: income received minus the cost of serving customers.

Customer lifetime value: customer margins multiplied by the duration and strength of their relationship with the company.

Customer impact: the effect of customer referrals and other behaviours that influence stakeholders’ actions.

Customer value can be measured and managed with reference to each source.

Step 2: measuring customer marginsTo enhance customer margins and so boost profits, a simple way might be to increase your prices. In competitive markets, where demand is highly price-inelastic, the reduction of non-product costs eg. those of marketing, order processing, relationship development and so on – allows companies to increase revenues without adjusting prices. Activity-based costing (ABC) systems can help companies to calculate and assign such costs and thereby calculate the profitability of each customer. Alternatively, a managed reduction in customer demand can also result in higher levels of profitability per head. For example, by charging fees for small orders, a firm can divert its resources away from short-term, unprofitable customers who require high levels of service and instead use them to help develop longer-term relationships with high-spending customers who are likely to be more profitable in the long run.

Step 3: managing customer lifetime valueCustomer profitability varies over time. As such, Customer Lifetime Value (CLV) is likely to be a more useful measure than a single-period metric. By calculating CLV, firms can differentiate customers who have made one-off purchases showing profitability in one period from those who have established a relationship with the company and are more likely to generate higher profits in the longer term. Different methods of calculating CLV exist, and all share three essential elements: profits, retention rate and discount rate. CLV can be increased by focusing on customer margins and/or by improving the duration or strength of the relationship between the consumer and the producer. Customer retention is a key part of CLV. It is improved by enhancing the value provided to the customer over time. The costs of acquiring a customer are repaid by retained customers.

Step 4: measuring customer impactCustomers can create or destroy value in ways that fall outside the reach of CLV. They have the capacity to affect corporate profitability by influencing the perceptions and actions of others.

Customers have an impact on other customers, your company’s employees and other groups, through their transactions and communications. Specifically, they can affect others by:
Recommending a product to other consumers – or warning them not to buy it.

Serving as role models to legitimise the use of the product
Using the product in a way that affects brand image. They can share their experience in consumer communities, providing tips for the company and solving problems for other customers.
Company representatives participating in these forums can use the knowledge gained to improve services to non-participating customers.

Step 5: managing customer profitabilitySeveral strategies are available for managing the components of customer profitability. A carefully formulated and clearly articulated strategy can lead to a dramatic improvement. For this to happen, you must also have a logical system for measuring and reporting performance for each customer segment.

A comprehensive system for managing customer profitability will have measures for:
Product and service value
Brand value
Relational value
Customer margins
Lifetime value

Positive Self Image

”A strong, positive self-image is the best possible preparation for success in life.”Dr. Joyce Brothers

How can you ever expect to rise above the image you hold of yourself on the inside? If you cannot see yourself as a winner, a person fully deserving the best life has to offer, you are needlessly shortchanging yourself and those around you as well. Please, please, please don’t make that unforgiving mistake.

You need to stoke those smoldering embers that burn deep within, that intense need to succeed that so desperately wants to get to the outside and make great things happen in your life. Instead of holding back like you’ve done so many times before; why not turn the tables by turning on the power and turning it loose? You need to see the power, feel the power and start living life with all the powerful purpose and passion you can muster.

In life, what you see is what you get. So why not reach out and grab the brass ring by SEEING yourself as the winner God put you on earth to be?

Be a Victor

“The only victory that counts is the one over yourself.” Jesse Owens

If success in life is about any one thing, it’s about making good choices. And the first choice you must make is whether you’re going to be a victor or victim in life. A victor assumes responsibility for where he or she is going, taking his or her lumps along the way without blaming or faulting others for his or her fate in life.

A victim, is well, a victim - always blaming others for his or her financial, occupational and interpersonal plight and all of his or her assorted problems. Victims never once realize that they could turn their lives completely around if they would only take charge and take responsibility for where they are and where they are headed in life. Simple, not easy.

A small performance improvement can make a huge difference in terms of rewards

For me, there is only one very, very important lesson that we can learn from Usain Bolt. And I will start talking about this lesson by way of a question. How many of you can name me the runner up in the 100 meters event, the 200 meters event and the 4 x 100 relay event, all of which Usain Bolt won or was part of the team that won?

I would think that 95% of you would not have been able to answer that question. So the first minor lesson in life is that nobody remembers the runner ups in life; We only remember the winner. And yet ironically the difference between the winner and the runner was in miniscule seconds

If we take the 100 meters for example, we find that the difference between the winner and the runner up was only 0.2 and yet the rewards that will be reaped by Usain Bolt will be at least a hundred fold more than Richard Thompson. Using the above only as a metaphor, what does it tell us? It tells us that in life ‘A small performance improvement can make a huge difference in terms of rewards.’

As W. Clement Stone, the author and master motivator said, “There is little difference in people, but that little difference makes a big difference.” It means that if each and every one of us can improve by say 5% in our skills or behavior, then the rewards we will reap will be many, many fold. That improvement may make us the Usain Bolt in our department, our company, our industry etc. And the great thing is that there is no need for a quantum leap in terms of performance. Just a little at the right places!

So just go out there and make that little performance improvement. You certainly can!! Ultimately you will be glad that you did when the rewards start to rain down!!

Thank you for taking the time to read this. I do hope that I have in a way motivated you to go out there to achieve your life’s goals. Take decisive action now!!! And have a great month ahead!

Effective Questions ?

Questioning Your Way to Better Teamwork

Like to get your group working more collaboratively together as a team? You can! And one of the best ways to do that is to ask questions … EFFECTIVE questions.

Have you ever asked, “Why can’t we all be better at teamwork?” and received blank stares, head scratching, and even some finger pointing? A question like that is ineffective – it’s non-specific, negative, and backward (what’s wrong) focused. Ineffective questions typically cause people to roll their eyes, affix blame, and “circle the wagons” in defensiveness instead of creating and testing ideas and solutions.

Effective questions are much different. They’re the “right” questions – ones that encourage people to focus on what they’ve done well in the past – and to use that information to help identify strategies for achieving today’s desired results.Effective questions can be the single-most potent tool in any leader’s toolbox. They create a mindset shift away from problem orientation and limitations – and toward solution orientation and possibilities. Here are five examples of effective questions you can ask to encourage your people to work together better. Give them a try …

What are some things we do well when we work together as a team?

What are some things that worked well on other teams of which you have been a part? What specifically caused each of those to work?

What is our vision of excellent collaboration and teamwork … what does it look like?

How would each of us benefit if we lived that vision every day?

What can we do to move closer to that vision? What are each of us willing and committed to contribute?

The Main Thing

Here are five ways to ensure your employees not only know what your main thing is, but also that they work together to accomplish it.

1. Share your vision of what’s truly important…what you want and need your team to achieve. Don’t just recite the organization’s vision – that’s great for the annual report, but employees need to know what’s in your head. It should be a clear explanation of what your team’s results can and should be…and how you see that happening.

2. Provide regular feedback on how each team member is helping to accomplish the main thing. Do not fall into the “as long as you don’t hear from me you’ll know you’re doing okay” trap. Again, your people need to hear directly from you whether things are going well or not.

3. Show the team that you care. If your group is like most, the question “Does anybody really give a flip about what we do around here?” probably comes up now and then. Everyone needs to feel (and BE) appreciated by his or her leader. In fact, being recognized for one’s efforts and contributions is the number one factor leading to long-term job satisfaction. That’s right…it ranks above money!

4. Identify and eliminate unnecessary activities that either don’t support your main thing or that block the progress and success of your people. Test all of the team’s decisions and activities against the main thing. Then have the courage to stop doing the things that distract the team from accomplishing its top priority.

5. Stay consistent. The leader’s job is to provide consistency in everything he or she does. Your actions must be consistent with your words. The performance reviews you conduct must be consistent with the coaching you have provided along the way; the reward system you have in place must reflect and acknowledge the accomplishment of important team goals.

You can do it

“Victory belongs to the most persevering.”Napoléon Bonaparte

Rather than playing the victim, where you see yourself as being picked on and passed over in the game of life, you can choose to assume a role you are much better suited to play - the role of a winner. Why not opt to step out of the shadows of straining and struggling day after day and boldly stride into victory lane instead? It can be done - and you can do it. Better choices are the ticket.

The decisions we make and the moves we make throughout our life adventures dictate the types of the lives we end up living. And you better believe that what we do or don’t do makes a world of difference in the lives we choose to lead. That’s right - the lives we choose.