Return on Customer: A new metric of value creation — Return on investment by itself is not good enough — Don Peppers and Martha Rogers, Journal of Direct, Data and Digital Marketing Practice Vol. 7 No. 4

Marketers are being assailed from all quarters with respect to accountability for their initiatives. But virtually all the ﬁnancial measures being used, from return on investment (ROI) to return on marketing investment (ROMI), have a fatal limitation: each assumes there is an inﬁnite supply of customers and prospects. In fact, customers and prospects are limited in number. They are a scarce productive resource — even scarcer than capital for most businesses. No business can create value without a customer, and different customers create value at different rates. If marketing’s job is to create the maximum possible value for a business, then it should employ a metric of success that gauges how much value is created per customer available, rather than how much value is created per dollar invested. Return on Customer, or ROC, is a metric designed for that purpose. ROC incorporates not just the proﬁt generated by a customer in the current period, but also any positive or negative changes in the customer’s lifetime value during the period. A ﬁrm relying on ROC will make different — and more managerially and ﬁnancially beneﬁcial — decisions than it would make by relying solely on ROI. ROC should be maximised from among the alternatives that exceed a ﬁrm’s investment hurdle rate. To do this, a ﬁrm must earn the trust of its customers. (14 pages)

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