Empower Your Business

Accounting is Just the Beginning

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The Lifetime Value of Your Customers

It’s vitally important to know the lifetime value of your average customer or client for two main reasons:

  1. If you know how much a customer is worth to you over the period they continue to buy from you it can makes a huge difference to how you treat and regard them. This helps us to take a long term view in doing the best possible job to look after and nurture customers and add value to each and every transaction with them rather than, like some badly advised business owners, maximising the value in today’s sale – in other words, screwing as much out of them as possible.

  1. In addition, if you know how much an average customer is worth to you, you know exactly how much you can spend to acquire a new customer. Say a customer is worth $20,000 to you. How much would you spend to get that customer? $5,000? $10,000? Now $5,000 may be the first two year’s worth of profit but wouldn’t that be worth it, assuming you could finance the loss of initial profit. So armed with that information you can now look at your marketing expenditure as an investment, not a cost, such that the MORE you spend the better off you are! Isn’t that fantastic?

To calculate the lifetime value of your average customer or client you need to know the average sale per customer, your gross profit margin, the number of times a customer buys annually from you and the number of years the average customer stays with you, as below:

Average $ Sale Per Customer ($)

Less: Cost of Sale ($)

Equals: Profit Per Individual Sale ($)

Multiply By: No. of Times Customer Buys Annually

Equals: Annual Profit per Customer ($)

Multiply By: No. Of Years as Customer

EQUALS LIFETIME PROFIT PER CUSTOMER ($)

Piece of cake right? Get out there and start investing in marketing!

If you need help with working out the lifetime value of your customer contact Nick on 0800 ASK NICK or email nick@abac.co.nz.