Sunday, August 05, 2007

Current cash flows can be at the cost of future flows

Book Value
Return on Customer
Don Peppers and Martha Rogers


Managers should ROC around the clock, say Don Peppers and Martha Rogers in ‘Return on Customer’ ( http://www.crosswordbookstores.com/).

ROC, they declare, is ‘a revolutionary way to measure and strengthen your business’. You need the new measure, the authors argue, because the financial metrics usually taught in business schools aren’t easily adapted to account for the value companies generate from customers. Remember, customers are a resource ‘scarcer than capital’ in today’s business world.
The ROC formula, explained in the book, has the sum of ‘current period cash flow from customers’ and ‘change in customer equity’ in the numerator, and ‘customer equity at the beginning of the period’ in the denominator.

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