Measuring Intangible Revenues

Here is a Four-step method that I have found quite useful for measuring Intangible Revenues.

Print out last year's customer list.

Use the template below to create a worksheet with eight columns, see below.

Give one tick for each customer that:

has own growth higher than the average customer
gives active referrals
is willing to act as references
has BIG projects (more than two employees or overlapping specialties)
our Senior executives generally learn from
our employees and younger professionals generally learn from
comes with NEW and intricate problems that can leverage a new specialty
is in one of our priority specialty sectors
is profitable (> 1^st quartile)

The customers comprising 80% of sales should suffice. Many customers will receive several ü s.

Replace the ticks with the sales volume of that particular customer and present the results.

Use the work sheet below to categorize your customers.

			Intangible Revenues			TOTAL	RANK
Customer	Sales Volume	Contributes to Financial Capital	Contributes to External Structure	Contributes to Internal Structure	Contributes to Individual Competence
		- Has own growth higher than the average customer - Comes with high profit projects (> 1^st quartile)	- Gives references - Gives active referrals - Is willing to act as references - Is in one of our priority specialty sectors	- Comes with BIG projects - Requires new solutions that can be leveraged to other customers	- Our employees and younger professionals learn from it - Our Senior executives learn from it
A	$100000	$100000				$100000	3
B	$90000		$90000			$90000	4
C	$70000			$70000	$70000	$140000	1
D	$60000					$60000	5
E	$50000	$50000		$50000		$100000	3
F	$30000	$30000	$30000	$30000	$30000	$120000	2
Others	$100000
Total sales	$500000
Total in columns	550000	$180000	$120000	$150000	$100000
Share		33%	22%	27%	18%	100%

The total in the columns will probably be larger than 100%, which is intentional.

Analysis of Example

Use the worksheet to analyse your customers. Look for:

Customers that receive no ü s at all. Consider whether you keep them.
Customers that receive üs in all columns. These are your "Gold Customers". Consider how you can over-service them!
Customers that receive 3 or more üs. They can be called your "Silver customers" and are also very valuable. They should be given special treatment!
Customers that contribute only to all intangible revenues, but are not profitable in financial terms. They are probably worth keeping, but they might come under fire from the accounting department. Are you making the most of these customers?
Columns with low shares of the revenues. What can you do to increase the share?
Columns with high shares of the revenues. Are you making the most of these customers?
Columns with few customers contributing. Are we too dependent of them?

What we are trying to get a grasp of is your company's exposure to a select group of your best customers. In the example above your exposure to customers that add to External Structure is for instance 22%.

The example indicates that your customers are very profitable, which is a good start. The Customers with learning projects seem too few, however. The External Structure would need a boost with new sales in that category. Customer F is a Gold Customer; very valuable, although it is small, because it is both very profitable in financial terms and contributes a lot to the intangible revenues. Trying to increase the sales to Customer F should be made a priority. Customer A is valuable because of its high profitability and its size, but is the company's profit perhaps too dependent on it? Can we generate intangible revenues from Customer A? That would be a huge benefit, because of its share of our business. We must must ask ourselves why we keep Customer D, which is fairly big, but contributes no Intangible Revenues at all and is not even particularly profitable.

Now consider the ranking. In a normal sales/customer analysis, the customer are ranked according to sales volume only - or at best - according to profitability. When you take the intangibles into consideration, the ranking may change considerably. In the example, Customer F, ranked 5 in a traditional analysis speeds up to rank 2. And Customer D fall down to rank 5. Etc.,

Identify the opportunities for generating more revenues from our existing customer base

Next, you use the ranking in the analysis above to identify the opportunities for generating more revenues in your existing customer base. Remember that revenues are both intangible and tangible! Questions to ask:

Can a customer with high $-sales volume also be made to contribute intangible revenues? Customer A in the example.
Can endorsements from a high-profile customer be used to generate $-revenues?
Is there a cross-selling opportunity with each customer that buys only one of our products or services?

Customer / Product (or Service)	Total $sales	Product 1	Service 2	Service 3
1. Customer C	$140000	$140000
2. Customer F	$30000		$30000
3. Customer A	$100000			$100000
4. Customer B	$90000	$30000	$30000	$30000
5. Customer D	$60000			$60000

Every empty space in the table is an opportunity for cross-selling!

Customer C is our best customer, but is buying only Product 1. How can we get Customer C to buy more? Can we use an endorsement from golden Customer F, which is buying Service 2? Same thing with Customer A and Customer D, who might be persuaded by an endorsement from Customer F. Why do we get so little intangible revenues from Customer D? Is there a reason? Why is Customer F buying so little from us? Is because it is small company or are there other reasons, competitors perhaps? Customer B is buying our whole range so we should use its referrals to generate more $-revenues.

Karl-Erik Sveiby

September 2003