When a business decides which customer projects to take on, which product developments to fund or where to put scarce engineering time, the analysis usually starts with revenue, margin and cost. Those numbers matter. They can still miss what the relationship behind the work is really worth.
One customer may contribute technical insight that improves the whole product range, credibility in a new market, steady volume through a downturn or introductions to other buyers. Another may generate high revenue while demanding extensive customisation, tying up the best people and creating little that can be reused. Judged on the revenue of the next job alone, the second customer wins every time. Judged on the relationship over several years, the answer may be different.
This article explains how to think about customer relationships as two-way exchanges of value, how to bring that thinking into decisions about which projects and products to invest in, and how to avoid the opposite error of labelling every favoured customer as “strategic” without saying why.
What the research suggests
Martin Voss and Alexander Kock, in a 2013 study of 174 medium and large organisations in Germany, Switzerland and Austria, distinguished two kinds of relationship value: value for the customer, meaning the benefits the customer receives from the relationship, and value from the customer, meaning what the supplier gains beyond the immediate sale. Both were independently associated with greater success in the organisations’ portfolios of projects. The positive effect of value for the customer was stronger where projects were more interdependent, portfolios were larger and technology was changing faster.
The authors noted an important limitation: value for the customer was assessed by people inside the supplier organisations, so it was effectively the supplier’s estimate of the customer’s view. Earlier, in a 2012 conceptual paper, Voss argued that customer relationship management and decisions about which projects to fund should be connected rather than managed separately, with customer knowledge entering decisions at every stage from selecting projects to allocating resources, steering work in progress and learning from results.
The practical lesson is that customer-facing investment decisions should not rely on project economics alone, and that knowledge about customers needs a deliberate route into those decisions.
Value for the customer
A relationship lasts only if it works for the customer too. Value for the customer can come from the core product or service, from how easy the supplier is to buy from, and from how the supplier improves the customer’s own operations: quality, reliability, responsiveness, support, faster time to market. It is offset by what the relationship costs the customer in price, effort and risk. If a customer’s economics deteriorate because of the relationship, it will not stay valuable for long.
Value from the customer
Value from the customer has direct and indirect forms.
Direct value:
- Profit: still fundamental. Strategic language should not hide a relationship that consistently loses money without a credible reason.
- Volume: can improve utilisation and spread fixed costs, but can also lock scarce capacity into low-margin work.
- Stability: some customers provide steady demand through downturns, which has value even if margins are not the highest. A “safe” customer can still create concentration risk.
Indirect value:
- Innovation: technically advanced customers can contribute knowledge that improves future products and services.
- Reference and referral: a credible customer can open doors in a new sector or region.
- Intelligence: customers can provide early information about emerging needs, technologies and competitors, though anecdotes should not replace wider evidence.
- Access: some customers help a business reach networks, supply chains or institutions it could not reach alone.
These categories come from research and are not a fixed checklist. Their value is in widening the question beyond revenue.
Common misreadings
- Customer value equals revenue. Revenue is one outcome of a relationship, not its whole contribution.
- Non-financial value is too subjective to manage. Some value is hard to put a dollar figure on, but it can still be described, estimated and weighed explicitly.
- Only value from the customer matters. A relationship that does not create value for the customer will not last.
- Relationship value is fixed. A customer can move from innovation partner to mature volume account, or from strategic entry point to legacy relationship.
- Benefits can be counted on every project. If five projects each claim the same market-access benefit from one customer, the business is counting it five times.
- Customer voice means customer control. Bringing customer knowledge into decisions does not mean letting individual customers dictate where the business invests.
- The loudest customer is the most important. Influence and value are not the same.
How investment decisions shape relationships
Decisions about projects and products affect customer relationships through several channels:
- Selection: which customer problems receive investment.
- Sequencing: when commitments are met.
- Resourcing: whether important customers get the people and capability they need.
- Stopping: how cancelled work affects trust and future opportunity.
- Platforms: whether one customer’s requirement becomes a capability that serves many.
- Capacity: whether the business accepts more customer-specific work than it can deliver reliably.
A project that is profitable on its own can weaken the business if it crowds out relationships with greater long-term value.
Bring customer knowledge into decisions
The people who know customers best, such as account managers, salespeople, service teams, product managers and installers, are often absent when investment decisions are made. Their knowledge arrives indirectly, if at all, through individual proposals. Make sure someone with credible, current knowledge of customers is part of decisions about which projects and products to fund, and that the information they bring is evidence, not just advocacy for their own accounts.
A relationship value test
For significant customer-facing investments, ask:
| Question | What to consider |
|---|---|
| Value for the customer | What benefit does this create for the customer, and how do we know? |
| Direct value from the customer | Profit, volume and stability, now and over several years |
| Indirect value from the customer | Learning, references, intelligence or access |
| Resource intensity | How much scarce capacity does it consume? |
| Reusability | Will the work create capability useful to other customers? |
| Dependency | Does it increase concentration or reduce bargaining power? |
| Direction | Is this relationship’s value growing, stable or declining? |
The answers should inform the decision, not be collapsed into a single score.
Ask customers what they value
Because suppliers often estimate value for the customer from their own side, it is worth checking directly. Periodic reviews with major customers, covering what is working, what is not and what is changing in their business, provide evidence that internal estimates cannot. Ask what they would miss if the relationship ended, what alternatives they consider, and what would make the relationship more valuable to them. These conversations often reveal opportunities, such as a recurring problem the business could solve for several customers, and risks, such as a customer quietly qualifying another supplier.
Reshape relationships that do not work
Some relationships consume more value than they create, even after the wider benefits are counted. Before ending one, consider reshaping it: adjusting prices, setting minimum order quantities, standardising options, charging for customisation, changing service levels or moving the customer to a different channel. Explain changes clearly and give notice. If the relationship still does not work, ending it gracefully protects the business’s reputation and frees capacity for customers who value what it offers.
Track how relationships change
Relationship value is easier to manage when a few simple measures are tracked over time for major customers: revenue and margin, share of the customer’s spending in your category where known, how often they refer new business, how much of the work done for them is reused elsewhere, how much scarce capacity they consume, and how satisfied they say they are. None of these alone tells the whole story, but together they show whether a relationship is strengthening or weakening, and whether its strategic label is still deserved.
Watch concentration
Relationships that are valuable in many ways can still create dangerous dependence. A customer providing a large share of revenue has significant bargaining power and can cause serious harm if it leaves or reduces orders. Track the share of revenue, profit and scarce capacity tied to each major customer, and treat rising concentration as a decision, not an accident.
A worked example
This is an illustration. A 20-person business designs and manufactures specialised instrument enclosures. Its engineering team can take on two development projects in the next six months, and three customers are asking.
- Customer A is the largest, providing about 35% of revenue. It wants a bespoke variant worth about $180,000 in revenue at a 22% margin, about $39,600. The work has little reuse value and would tie up two engineers for four months.
- Customer B is mid-sized and technically advanced. It wants to co-develop an improved sealing system worth about $90,000 at 30%, about $27,000. The improvement could be offered to at least four other customers.
- Customer C is small, offering about $40,000 at 15%, about $6,000, but would be the business’s first reference in a regulated sector it wants to enter.
Ranked by margin on the next job, the choice is A and B. The relationship view adds more: B’s platform could generate significant further margin across other customers over the next two years; C opens a new sector; and A’s project would push A towards 40% of revenue while consuming capacity on work with no reuse.
The owner chooses B and a reduced version of A, negotiating with A to build its variant on B’s new sealing platform, which cuts the bespoke work and improves reuse. C is offered a smaller paid pilot now, with full development planned for the following half-year. The decision record notes the opportunity cost of deferring C and the target to keep A below 35% of revenue. The financial ranking was not ignored, but it was not the only consideration.
How this applies to a small Australian business
Small businesses often have a few large customers and limited capacity, which makes these choices frequent and consequential. Practical steps:
- Describe what each major customer relationship provides beyond revenue.
- Ask what the relationship provides for the customer, and check it with them.
- Bring customer-facing staff into investment decisions.
- Prefer work that creates reusable capability where other factors are similar.
- Track concentration of revenue, profit and capacity.
- Avoid counting the same strategic benefit in several proposals.
- Review relationship value periodically, as relationships change.
The articles on customer lifetime value, acquisition cost and retention and focusing business resources without losing flexibility cover related ideas.
Signals worth watching
- High-revenue customers receiving automatic priority.
- “Strategic customer” used as a label without a stated reason.
- Technically valuable customers deprioritised because their current revenue is small.
- Bespoke work consuming capacity without creating reusable capability.
- Concentration rising through a series of individually attractive decisions.
- Customer-facing staff learning about investment priorities after they are set.
- Relationship value discussed but never affecting resource allocation.
Common mistakes
- Ranking customer work on next-job margin alone.
- Using “strategic” to justify unprofitable work without evidence.
- Ignoring what the customer gets from the relationship.
- Letting the loudest customer set priorities.
- Double-counting relationship benefits.
- Allowing concentration to grow by default.
Frequently asked questions
How do we put a value on indirect benefits? Estimate where you reasonably can, such as expected sales from a platform or a new sector, and describe the rest explicitly. A stated judgement is better than a hidden one or an invented number.
Should we ever accept a low-margin job for strategic reasons? Sometimes, if the strategic value is clear, time-limited and checked later. Record the reason and review whether the expected benefit arrived.
How do we stop salespeople inflating their customers’ strategic value? Ask for evidence, compare claims across accounts, and review outcomes against earlier claims. Over time, track records make claims more credible or less.
What if one customer dominates our revenue and we cannot replace it quickly? Treat reducing that dependence as a deliberate, gradual goal: develop other customers and markets, avoid customer-specific investments that deepen the dependence, and keep enough cash to absorb a sudden reduction in orders.
How often should we review customer relationships? At least annually for major customers, and whenever a significant investment decision involves them.
What is the first step if we have never looked at customers this way? List your ten largest customers by revenue, then add a column for margin and a column for anything else they bring, such as referrals, learning, credibility in a new sector or steady volume that keeps people busy. Write one sentence per customer on what the relationship is really worth and what it costs. The gaps and surprises in that list usually show where to start.
Questions to ask
- Which customers create value beyond their revenue, and how?
- Which relationships consume a disproportionate share of our scarce capacity?
- Where do customers give us learning, references, intelligence or access that our numbers do not show?
- Which projects create capability useful to many customers?
- Are we counting the same strategic benefit in several proposals?
- How would our choices change if we judged relationships over five years rather than one job?
Bringing it together
Customers are participants in an exchange that can create profit, volume, stability, learning, references, intelligence and access, as well as value for themselves. Bring that wider view into decisions about which projects and products to fund, involve the people who know customers best, test proposals for reuse, dependency and direction, and watch concentration. The goal is not to give every relationship a strategic premium. It is to understand what the business is really gaining and giving up, and to invest scarce capacity where it creates the most lasting value.
Source: KEVOS notes, drawing on M. Voss and A. Kock (2013) on relationship value and project portfolio success, and M. Voss (2012) on integrating customer relationship management with project portfolio management. Examples and figures in this article are illustrations.
