Most customers are sources of value, in forms other than hard cash. They provide training for employees, they can act as references, they talk to each other and so spread the word and the image, and their demands encourage the development of new products. Revenues arising from intangible assets take intangible forms.

Most companies use customer projects to develop new methods. As anyone who has worked in sales will tell you, projects undertaken successfully for "high-profile" customers are, irrespective of how profitable they are, invaluable aids in selling, because they attract attention and can be used as "reference accounts" for years afterwards.

The fact that a small country like Sweden boasts such a large and successful communications company as Ericsson, is largely attributable to the fact that Ericsson has a knowledgeable and demanding customer, in the shape of Telia (the former Swedish Telecom Service). Michael Porter argues that the existence or absence of demanding customers helps to explain why some national industries become globally competitive, while others do not.

Other customers contribute their image. Having IBM or General Motors as a customer is a valuable reference, and it is quite remarkable how many big-name companies appear as existing or former clients, on consultants' CVs. However, the size of the customer has little to do with how interesting or challenging the projects are. The most challenging and therefore the most educational work is often done for less well-known customers. A focused strategy that takes intangible revenues into account therefore involves getting to know one's customers really well.

The big auditing firms use their large customers, to train new recruits, by assigning them the routine parts of the audit. The senior auditors and the large customers recognize that such customers are valuable. Indeed, the latter are asking with increasing frequency these days, what they get, in return for teaching their auditors' "rookies" their business.

BUT, do you know which of your customers that contribute intangible revenues? Do you have systems for monitoring them? I have created a simple method for identifying Intangible Revenues. When armed with an intimate understanding of its customers, a company can be more selective in its marketing. It can concentrate the company's most valuable (scarcest) skills on projects where they fit in best, and will do the most good both for the customer, and the knowledge company itself.

Table 1. Three kinds of Intangible Revenues.

One can distinguish three kinds of invisible revenues, those that improve customer relations, those that improve the internal structure and those that improve competence.

A company's choice of customers, therefore, is of vital strategic significance, because they determine both the quality and quantity of its invisible knowledge revenues. In developing a strategy it is necessary to consider visible earnings (how profitable each customer is), but it is not sufficient and in the ultimate analysis, the flows of knowledge from customers are more critical, because they are the source of visible revenue.