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Home arrow Accounting arrow Berliner Balanced Scorecard: The Customer Perspective
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2. From customer profit contribution to customer cash flow

The calculation of the customer profit contribution is based on past-orientated accounting but does not take into account all liquidity relevant aspects. The economic aspects included in categories such as expenses and income, and costs and result however are of interest. Therefore, it is logical to derive the required planning data from internal accounting performance indicators, by referring to the customer profit contribution assessment formula and focusing on its liquidity relevant components are focused on. Revenue (minus sales deductions) is payment effective anyway. This does not unrestrictedly apply to cost. Therefore, cost components which have a pure value basis, such as depreciation, must be referred back to their original payment (e.g. acquisition expenses). For a specified planning horizon (e.g. year, month), significant differences between value-based and payment-effective costing may arise.10

In the following table, the detailed assessment of the customer cash flow is clearly illustrated and subsequently elucidated.

Customer cash flow calculation

Customer sales


Customer sales deductions


Customer net revenue

Customer net revenue


Material costs


Variable production costs


Variable distribution costs


Payment ineffective variable costs

Payment effective product profit contribution


Depreciation on tangible assets


Ongoing marketing costs


Payment ineffective direct customer costs

Payment effective customer profit contribution I


Indirect material costs


Indirect production costs


Indirect personnel costs


Indirect administration and distribution costs


Product advertising


Payment ineffective indirect customer costs

Payment effective customer profit contribution II


Investment-based payments

Customer cash flow

Diagram 4: From customer profit contribution to customer cash flow

To obtain the customer cash flow, firstly all fixed and variable costs are subtracted from the net revenue and, similarly any payment ineffective costs, already deducted within the applicable cost type, are eliminated per addition. In this way the fixed direct customer costs include for example depreciations on fixed assets, which are negated in the line "Payment ineffective direct customer costs" if they do not effect an out-payment in the corresponding period. Payment ineffective indirect customer costs are for example imputed equity interest. Finally, the investment-related payments are deducted, if the original payment falls into the time period of the business relationship under consideration. It should furthermore be observed that when calculating the customer cash flow, no chronological divergences in payments and output occur, as it is the case for credit sales or customer prepayments. In the case of credit sales, the revenue surplus is lower than the cash flow; if the customer has made prepayments this relationship is reversed. The divergence of outpayments and expenses, for example in the case of credit purchases, prepayments made to suppliers etc., must be taken into account, too. For prepayments to suppliers, the revenue surplus is lower than the cash flow.

3. Calculated investment summary of the customer value

The reference period-related customer cash flows form the series for the investment calculation. To determine the value of a customer relationship, a dynamic investment calculation procedure, the net present value method, is applied. The net present value method calculates the cash value, here the projected customer cash flows or the deviation between the future in and out payments, with an adequate target rate is discounted to present day value.13 This method is mainly suitable for the application in business-to-business areas, i.e. if a long-term business relationship exists and the enterprise can accurately forecast the in- and out payments. Furthermore this process suits to almost definite values, i.e. that the business relationship has been established contractually, for example in the case of insurance or newspaper publishing companies.

The formula for calculating the customer value (cv) may be defined as follows:

A further method of calculation is presented by the "payment effective customer contribution" (PECC) in diagram 4:


et: projected customer-specific inpayments in period t

at: projected customer-specific outpayments in period t

i: adequate target rate

t: period (t = 0,1,2,.,n)

n: duration of the business relationship

In the following, the determination of the adequate target rate is explained in greater detail.

3.1. Determining the adequate target rate

To calculate the capital value of a business relationship, the projected cash flow is discounted at an appropriate adequate target rate. As the customer value represents a portion of a company's capital value, it is possible to refer to the procedure of company evaluation and the evaluation of investment projects. In order to meet the requirements of the investors, the minimum interest calculation of the total cost of capital (WACC) can be employed. The cost of equity rate may be determined based on the capital asset pricing model (CAPM), which has the target to calculate for each capital investment a risk adjusted return requirement.

The cost of equity is composed as follows:

Cost of equity = Risk free interest rate + equity risk premium

Risk free rate = "Real" interest rate + expected inflation rate

Risk premium = Beta * (expected market return - risk-free interest rate)

The market risk premium represents the additional payments, demanded by investors for investing in the enterprise rather than making a "safe" investment.

To determine the outside capital rate, the average of the total outside capital caused costs during the planning period by customer relationships, is referred to.

3.2. Field of application for the customer value and interpretation of the results

Depending how high the anticipated customer cash flows are, an aggregated customer value represents a significant portion of the company value. Provided that the management has set a target to enhance the value of the company, the use of the prospective customer value is a measure for defining performance targets and for controlling the target's achievement. Particularly in marketing, the use of the prospective customer value can effectively support strategic decisions in a way that the possible effects can be controlled regarding their positive influence on the customer value in order to utilize the company resources in a way that enhances its value. Analogue fields of application are offered for the selection of new target groups, the handling of existing customers, the development of new products and the implementation of new marketing strategies. Through the direct link between company and customer value, the advantageousness of strategic decisions can be directly controlled from the perspective of the investor.

Provided that the customer value is determined by means of activity-based costing, on the basis of existing data a customer evaluation may be performed based on the costs he has caused. In that way the foundation for optimizing the entire customer base can be created. Furthermore, information can be derived for continuing optimization of the business process. This requires that all relevant services (also overhead areas such as distribution, production planning, disposition, purchasing etc.) are customer -and activity specifically recorded, evaluated via cost accounting and set off.

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