Time for a better metric for assessing true costs

Ever since purse strings began to tighten and IT budgets started coming under closer scrutiny, I’ve asked as many technology users as possible how they calculate return on investment, and how quickly they hope to achieve it for a specific project.

The answers are often the same. They look at

increased productivity (an obsession among many senior-level executives) or improved service to customers. Others cite manageability, which can be related to productivity but also points to improved value, if automation is allowing employees to abandon manual, time-consuming, low-return functions. Then, during a recent panel discussion about e-mail marketing, someone in the audience posed a question that stumped all the experts: how does technology affect the cost per customer?

We know how much computers cost, and are even getting better at figuring out what they will require in terms of support and maintenance over extended periods of time — that’s what’s allowed so many enterprises to put off new purchases. But where total cost of ownership (TCO) ends, cost per customer (CPC) begins. Since this is the amount companies spend on technology to both attract and retain their clients, this may well become the primary metric to which CIOs are held accountable.

CPC has been a part of the marketing industry’s jargon for years, and it’s no wonder marketers would be among the first to apply it to the Internet. As a vehicle for mass communications, much of the Internet’s content consists of marketing in some form, including the “”brochure sites”” that populated the Internet in its early days. As business-to-business (B2B) and business-to-consumer (B2C) e-commerce starts to mature, enterprise firms pay more attention to Web-enabled transactions, which could be a starting point for calculating CPC.

At the recent CIO Summit, Xerox Global Services’ chief technology officer Bob Bauer came up with a good definition for transactions: the expense of organizing a firm’s capacity to deliver goods and services. This could be the costs of capturing online ordering information and distributing it to the fulfillment side of an operation, for example. In the B2C realm, the transaction costs have to be reasonable enough to serve the large volumes of everyday customers. In the B2B realm, the substantial size of some transactions may be much higher than the actual number of transactions, which alters the way we would factor transaction costs into CPC.

The issue becomes further complicated when we break out the discussion between the costs to acquire new customers and the cost to manage existing ones. As any marketer will tell, the cheapest CPC comes through referral business, which is itself a form of grassroots marketing. Existing customers are a different matter altogether. Although we are all probably familiar by now with customer relationship management software, those tools are usually designed merely to collect data that could encourage cross-selling and deepen the loyalty of individual clients. It doesn’t get at some of the finer points of CPC — how expectations for service delivery may rise once a relationship has been established, or the cost of communicating with clients and making a connection on a regular basis that will lead to more transactions.

These are not just issues for the marketing department. With the commoditization of hardware and software and the transition to a services economy, CPC will tell companies like outsourcers whether certain accounts are worth their while. This is post-transaction CPC, and the regular productivity or manageability numbers will look meaningless beside it.

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Jim Love, Chief Content Officer, IT World Canada

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Shane Schick
Shane Schick
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