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1/ The moment I encountered the ideas of Peter Fader and Dan McCarthy we immediately clicked. Dan said recently: "Customer based corporate valuation is the intersection of marketing, finance and statistics." I've been working on these issues since the 1980s in cable and cellular.
2/ The premise behind Customer-Based Corporate Valuation is simple.Recognizing that every dollar of revenue comes from a customer who makes a purchase, CBCV usrs accounting principles to make projections from the bottom up instead of from the top down. https://hbr.org/2020/01/the-loyalty-economy#how-to-value-a-company-by-analyzing-its-customers
3/ The two components of a customer’s value are: how much you spend to bring them in the door (CAC) and the value you get after they are acquired (post acquisition value of the customer or PAV). "If you take PAV and subtract CAC, that's lifetime value." https://retailgeek.com/jason-scot-show-episode-224-clv-dan-mccarthy/
4/ "CBCV allows marketers to communicate the value they’re creating, in a way finance people respect and understand." "CMOs are a lot more accountable and everyone is obsessing over right things like the customer retention curve."
5/ "Finance can see the analogy of CBCV to project finance - you spend money on a project, you have payback periods, net present value of the project and internal rate of return. If you replace project with customer, they say 'that makes sense - the customer is my project.'"
6/ "If you just wanted to maximize the CLV of your business you should go after this super tiny market with a few super good customers in it. But there’s so few of them that you are leaving money on the table. What we want to maximize kind of like P times Q."
7/ "The profit margin used in CBCV calculations should be the fully-loaded effective variable profit margin, factoring in costs like fulfillment expenses and merchant processing fees which often are not included in cost of goods sold and instead are operating expenses."
8/ "Chopping up a revenue bar into acquisition cohorts and showing that over time allows you to see how much revenue a company is getting from customers in future years."
If a business isn't doing customer cohort analysis, what exactly are they doing that's more important?
If a business isn't doing customer cohort analysis, what exactly are they doing that's more important?
9/ In the mobile business in the 1980s and early 1990s you *never* stopped thinking about generating and managing cash. The way you tracked value creation was to use a bottoms-up customer-based valuation. That's where I created the Five Horses idea. https://abovethecrowd.com/2012/09/04/the-dangerous-seduction-of-the-lifetime-value-ltv-formula/
10/ Since cash was a life or death fact of my daily business life for many years I was naturally attracted to the ideas of Michael Mauboussin, Warren Buffett, Charlie Munger and Jeff Bezos. My focus on cash and not earnings all traces back to John Malone: https://25iq.com/2014/11/02/a-dozen-things-ive-learned-from-john-malone/
11/ “It’s not about earnings, it’s about wealth creation and levered cash-flow growth. I used to go to shareholder meetings and someone would ask about earnings, and I’d say, ‘I think you’re in the wrong meeting.’ That’s the wrong metric."
John Malone
John Malone
