EXPRESS: A Suite of Metrics to Understand Return on Investments in Customers

Abstract

When making customer investments under resource constraints, approaches based upon next period accounting profit fail to consider the long-term. As we show, marketers’ suggested solutions often omit retention spend from the customer investment, understating the required committed marketing spend. Unfortunately, the logical outcome is a focus on the wrong (high retention cost) customers. Marketers may even try to acquire customers as long-term investments, then refuse to invest in their retention. We develop a suite of metrics to consider investments in customers, including customer return on investment (CROI), acquisition return on investment (AROI), retention return on investment (RROI), and option return on investment (OROI). Using the suite can help marketers calculate meaningful ROIs, even when they cannot clearly differentiate between acquisition and retention marketing spend. Our key contributions show how to assess the value of customer investments and treat customer acquisition as gaining an option to spend on retention. We outline the connection between the metrics, detail when each are appropriate, and show how to apply the suite of metrics to a variety of simulated datasets.