Every single dollar comes from one place - the customer's pocket.

So why not build your focus from there?

In the world of business valuation, we often get lost in complex financial models, market multiples, and abstract metrics.

But there's a fundamental truth we sometimes overlook: every dollar of revenue ultimately comes from customers deciding to open their wallets. This simple reality is driving a revolution in how we value companies through an approach called customer-based corporate valuation (CBCV) or average Customer Lifetime Value (aCLV).

Traditional valuation methods often treat customers as an afterthought, focusing instead on top-line revenue growth and margin expansion. But this approach often misses the point.

Revenue isn't some abstract number that appears on financial statements by magic – it's the result of individual customers making individual purchasing decisions.

By understanding these decisions at a granular level, we can build more accurate and insightful valuations from the ground up.

Think about it this way: if you wanted to predict a company's future revenue, wouldn't you want to know how many customers they'll acquire, how much these customers will spend, and how long they'll stick around? That's exactly what CBCV does. It breaks down a company's value into its most fundamental unit – the customer relationship.

The beauty of this approach lies in its predictive power. By modelling customer behaviour patterns – acquisition rates, spending habits, churn probabilities – we can forecast future cash flows with greater precision than traditional methods allow.

Most importantly, this approach gives business leaders actionable insights. Want to increase company value? Now you can see exactly how improvements in customer retention or acquisition efficiency will impact overall valuation.

This isn't just theoretical – companies like Netflix & Spotify have already embraced customer-based metrics as core elements of their financial reporting. They understand that customer behaviour is the leading indicator of financial performance. It works for non-subscription company’s also.

When you know how your customer base is evolving, you can see where your business is headed before it shows up in the quarterly numbers.

What if your approach to sales & digital marketing also reflected this focus through the customer journey?

It leads to different conversations with your marketing team/agency.

For a start, you’ll be able to replace ‘clicks, bounce rates, and channel by channel blah, blah’, along with polite attempts to cover obligatory mid-slide yawns (“bugger, I thought they weren’t looking.”), with a more meaningful customer journey focused discussion that you as a business owner/CEO (even your CFO!) will understanding.

It answers not only what’s taking place - but more importantly ‘Why!’

“We’re getting them (customers) from here, here and here”

”We’re retaining them here, here and here.”

“But we are losing some over here – don’t worry I’m onto it.”

Followed by a simple…

“We are delivering aCLV of $113.49” and a Marketing ROI of 418%”    

Oh… and finally

“Boss, I’m paying for the pastries.” (because a little bribery and corruption from marketing still never hurts ;-)

CBCV & aCLV brings transparency to company valuations, and sales/marketing reporting, in a way that traditional methods can't match. Instead of relying on black-box multiples or arbitrary growth assumptions, it builds forecasts based on observable customer behaviours. This makes it easier to identify both risks and opportunities in a business model. Are acquisition costs rising? Is retention improving? These metrics directly impact value, and CBCV makes these relationships explicit.

Critics might argue that this approach is too complex or data-intensive. But in an age where companies have more customer data than ever before, ignoring this information in valuation decisions seems increasingly shortsighted. The tools and technologies to implement CBCV are readily available – what's needed is a shift in mindset.

For investors, CBCV offers a more nuanced way to evaluate companies. Instead of relying solely on financial statements, they can assess the health of a business through the lens of its customer relationships. Are customers staying longer? Spending more? These metrics often predict financial performance months or years in advance.

The future of corporate valuation lies in understanding the customer. After all, when you can predict how customers will behave, you can predict how a business will perform. It's time to recognise that every dollar of corporate value ultimately traces back to one place – the customer's pocket.

Building valuations from this foundation just makes sense.

So the next time you're evaluating a business – whether as an investor, department head, or owner – start with the customer. Track their journey from acquisition through retention and expansion. Model their behaviour patterns and lifetime value.

Because in the end, it's customer decisions that drive business success, and any valuation method that ignores this fundamental truth is incomplete at best (…and leads to boring, pastry-less meetings)