Welcome to Marketonomy. I certainly appreciate your time coming out to explain ROC. I have nothing but respect for your marketing expertise, but I have to say I’m not sure I see the suggested parity in value between a metric like ROI and your proposed ROC. Don’t get me wrong–I agree wholeheartedly with many of your statements about the value of customers, the importance of taking a long-term view, and the need for companies to know the value different customers create, but when it comes to delivering up hard numbers on underlying calculations like “Customer Equity”, I start to wonder how well the utility of the concept lives up to the promotion.

Maybe this could be an opportunity for me learn. If you’re at all interested, I’d love to invite you to discuss ROC on Marketonomy in just a little more depth, maybe after the new year?

Thanks. /chris

However, the Return on Customer (sm) concept is not just a clever way to say “marketing.” It is a genuinely different financial metric, based on a common-sense principle that is often overlooked by marketers: Customers are limited in number, and they should be treated as a scarce productive resource.

Capital is a scarce productive resource, also, but its scarcity is not absolute. Capital has a cost, and provided you can meet that cost, then capital is more or less unlimited. If you have a marketing initiative that promises a good ROI, you can always go to the bank, borrow the money, then repay it with interest after earning your ROI.

But no bank will lend you customers to be paid back with interest. You can only create value using the customers and prospective customers available to you. Case closed. Game over.

Let’s say you were trying to evaluate which of two possible marketing initiatives to undertake. Initiative A requires you to spend $10 per customer and yields a profit of $5 per customer, for a 50% ROI, while Initiative B requires you to invest $20 per customer and yields $7 in profit, for a 35% ROI.

Any sane person would choose the 50% ROI, right? Wrong. Since both the 35% and the 50% ROI are clearly in excess of your cost of capital, your supply of funds is unlimited, but your supply of customers is not. Suppose you had just that ONE customer? Then Initiative B would create $7 in profit, compared to just $5 for A.

But here’s the punchline: You should still choose Initiative B even if you “only” have a million customers, or 100 million.

We’re not saying that ROI isn’t important. Money does cost money, and you have to pay attention to the return you get on the money you use. But ROI is not sufficient, by itself.

So, while we couldn’t agree more that almost all of the RO[X] ideas out there are not very helpful, we beg to differ when it comes to ROC, which will actually lead to different decisions.

Trust me, ROP, ROC, ROI, ROFOTM, is less about tapping into trends, and more about getting marketers to think about ways to help each other bridge the gap between marketing speak and the real world needs of CxO’s.