Do you know – Lifetime Value Of A Customer

Do you value your customers?

We all appreciate our customers, but do we really value them?  There’s a huge difference there and we’re not just talking semantics, we’re talking about the lifetime value, that customer, provides to a Maine small business.  Most small businesses don’t even know what the lifetime value of a customer is, never mind how to calculate it.

Calculating the Lifetime Value of a Customer

Some Maine website design companies may say that “break even” is the most important metric of a business, but we believe “lifetime value” is perhaps the most significant measure. We also know it’s one of the most overlooked and least understood metrics in business — even though it’s one of the easiest to figure out.

So what, why is this metric so important?

Once you figure out this number, it should help you decide how much you must spend to “get” that customer, for example by getting a fanpage or blog. After you know how often a customer buys and how much they spend, you’ll know how much you must spend towards gaining new customers online, growing your company, and keeping your existing customers happy by giving them a direct link.

The simplest way to estimate lifetime value

(Average $ of Sale) X (Number of Repeat Transactions) X (Average Retention Time in Months or Years for a Typical Customer)

An easy example would be the lifetime value of a gym member who spends $20 every month for 3 years. The value of that customer would be:

$20 X 12 months X 3 years = $720 in total revenue (or $240 per year)

Now you can see even from this example why many gyms offer a free starter membership to help drive traffic. gym owners know that as long as they spend less than $240 to acquire a new member, the customer will prove profitable in a short amount of time.

How much should you spend now?

Now, figure out your lifetime customer value, how much are you going to spend on webpage design or seo services to get that customer? The point is, you’ll never know how to budget for an online presence, unless you know what you must spend to get that customer. This knowledge is vital because it will help you make marketing decisions based on your own numbers, rather than the promises of some new media.  And don’t forget, YOUR time is money too!

Don’t discount Discounts

Knowing lifetime value lets you see how much, or any, you can discount. With that number, you will be able to run cross-promotions, online give-a-ways, online or offline discounts for action (visit business, referrals, etc) knowing that what you spend will be less than what that customer will spend with you. From there, you will be able to see what online methods work for gaining customers, what media has the best return on investment, and what online presence management serves your customers best.

The bottom line is, it’s the lifetime customer value that will determine the ultimate success of any Maine small business’ website, social media, and online presence.