What is Customer Equity?

Retail businesses are built customer by customer, and it’s those customers who keep the lights on. In this new two-minute video, Custora CEO Corey Pierson explains the value of keeping an eye on customer equity.

Featuring Corey Pierson, CEO and Cofounder of Custora

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TRANSCRIPT:"
There's this really interesting concept called "customer equity." First things first, what does it mean?

It means, "Look, I've got a whole bunch of users in my user file, all the different customers in our database, and they're all going to spend some." Brady, over here, he might spend 200 bucks. I might spend 500 bucks.

If you sum all that up, it's a really interesting way to think about the value of your business. Sum up every single customer in the database and project what they're going to spend over the next year, two years, three years. Factor in also that I'm going to acquire some new customers, right? If you're thinking about forecasting and how much all those new customers spend.

It's like a portfolio of stocks, some of them drive a lot of gains and some of them don't. If you are a direct-to-consumer brand, every single dollar you earn is paid for by a customer. If you are looking at-- The customer equity is saying, we're going to take a customer-first lens of looking at lifetime value or maybe future one-year spend of our customer base as a proxy.

That is the equity, that is the value, the customer-driven value that we see of the existing customer file right now. It becomes really fun to track that if you're on the financial side of the retail house because what you can think about is, "Look, every single month we're going to gain some customers, we're going to lose some customers. Some customers are going to heat up, some customers are going to cool down."

All of that gets reflected in that customer equity thing.

You have this mix perpetually of customers coming in, customers fading out, customers turning out completely and the customer equity metric groups all that in to say, "Look, is the value of our customer base, the portfolio of assets."

That feels dirty to say, customers are human beings, they're not assets but if you just looking at it from a financial point of view, you have this collection of assets, of customers that are different levels of engagement, different types of spenders and the customer equity metric allows you to track that over time. It's really valuable, again, very high-level C-suite... It can be helpful when you're reporting to the street but it also can be helpful just as you're analyzing net-net, new, lost, heat up, cool down: is the value of this business growing.