Know How Many Customers Carry Half Your Revenue

What it is

It’s Peter Fader’s third book on customer centricity, written with Bruce Hardie of London Business School and Michael Ross, and published by Wharton School Press in November 2022. The authors call it the first step on that journey, and they define it plainly:

“A customer-base audit is a systematic review of the buying behavior of a firm’s customers using data captured by its transaction systems.” The Customer-Base Audit, as excerpted in Knowledge at Wharton, July 24, 2023

It’s descriptive on purpose. There are no demographics, no attitude surveys and no predictive models, only what your customers bought and when.

What you’ll take from it

The book opens with questions the authors say most senior executives can’t answer. How many customers do you really have? How many one-time buyers did you have last year? How many customers accounted for half of your revenue?

Then it gives you five lenses, a chapter each. How different are your customers? What changed since last period? How does a cohort’s behavior evolve? How do cohorts compare? How healthy is the customer base as a whole? A cohort is the group of customers you acquired in the same period. “The power of the cohort idea is that membership is immutable,” Ross said when the book came out, so you can follow the same group for years.

The spread between customers is wide. In a 2022 interview Ross said a top-decile customer “can be worth 40 or 50 times a low-value customer.”

Where it shows up in your numbers

This is the A–D split done properly. Hardie put the question every team should ask about its own book.

“We all talk about the idea that customers are not equal, and we all throw around things like the 80-20 rule. But how do you know if that’s the actual reality for your business?” Bruce Hardie, Knowledge at Wharton podcast, November 1, 2022

Start with last year’s buyers. Rank them by revenue and count how many it takes to reach half of it. That’s your concentration. Then do the same thing by cohort, because a single-year ranking mixes customers you’ve had for a decade with ones you found last month. Split every cohort into A through D and you can see whether this year’s acquisition is producing A’s at the rate the older cohorts did. No cost-per-acquisition report will show you that.

So report revenue by cohort and by tier every quarter, next to the P&L. Judge each acquisition channel by the share of its cohort that becomes A or B, not by how many customers it added.