Businesspeople understand that not all customers are created equal—the 80-20 rule suggests that over time a small percentage of a company's customer base can generate a high percentage of its sales and profit. Models for calculating customer lifetime value are built on just such a premise.
But new research is starting to look at customers whose value is not as readily apparent, and where CLV calculations break down. In a recent working paper, Harvard Business School professor Sunil Gupta calls them "free" customers—think of buyers at an auction. Traditionally auction houses make most of their profit from fees paid by sellers; buyers don't pay fees. So although buyers are a necessary ingredient to the deal—no buyers, no sellers—their value is more difficult to quantify. To the auction house, is one buyer worth four sellers? Is one buyer worth one seller?
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