Most business models are built on the concept of recurring sales, and most companies could not afford to sell only to new customers. As a result, many companies spend small fortunes to retain as many customers as they can. Repeat customers are truly the lifeblood of just about any organization -- but are they really worth it?

Given the importance of this information, it’s somewhat surprising that relatively few companies calculate profitability accurately enough to make certain they’re acquiring the right customers in the first place.

Knowing the value customers bring to an organization -- and determining their long-term potential for generating profits -- is the key to making good spending decisions, but it’s a much more complicated task than most companies admit or even realize.

Know when to fold ‘em

An old business adage says that the cost of keeping existing customers is a fraction of the cost of acquiring new ones.

The problem is that not all companies know exactly how much business their existing customers even bring to the table. The more segmented and "siloed" an organization and its services are, the more difficult it is to attain that information. And even if this data is readily available, it generally isn’t adequate to precisely pinpoint a customer’s bottom-line value.

Organizations often assume that today’s biggest-spending customers are their most profitable ones. But careful analysis of what it costs to serve these big clients can sometimes prove otherwise. If a company’s biggest clients require a lot of special attention and hand-holding, they may not bring in enough incremental revenue to cover the additional service investment the relationship requires. Bigger isn’t necessarily better, and long-term, steady customers can contribute more to a company’s bottom line over the lifetime of their relationship than short-term big spenders.

Keep an eye on their future plans -- and your own

To complicate matters even more, companies must also estimate how much business they could conduct with their current customers in the months and years ahead. Customer value is a combination of how much revenue they generate today and how much they are expected to generate in the future. This important piece of the profitability equation is sometimes referred to as the lifetime value of the customer, and it includes potential revenue from yet-to-be-developed products and services as well as revenue from current products and services.

Companies with a broad understanding of customer value typically aim to grow revenues from all customer types. Keeping a mix of customers representing short- and long-term profitability is prudent, especially if those marginally valuable customers today could prove to be extremely valuable tomorrow. The key is to create a profitability profile on every customer and allocate resources accordingly.