How to Calculate What a Customer is Worth

Read Time: Under 5min

Do you know your customers lifetime value (CLV)? If the answer is no, you are not alone. Let’s talks $$$. Here are three ways understanding your customer lifetime value will help you increase your company’s sales.

 

 

#1 Advertising

Knowing your customers’ lifetime value, you can gauge how your advertising campaigns are performing and make informed decisions.

#2 Upsell or Cross-sell

Most sales reps don’t want to come off “pushy” so they won’t even inform their customers about different products and services. How can you educate your customers about your other products or services you offer to generate more revenue?

#3 Return Customers

Past customers are more likely to buy from you again. What are you doing to stay connected with them? Simple email newsletters, reaching out via phone or targeted postcard campaigns to your customer list will increase return customers, which will increase your CLV.

Warning:

In this next section, I will be talking about numbers and equations which can induce flashbacks of high school math class, causing you to zone out. COME BACK!!! I promise this is simple.

 

What you will need (if you are not sure, then guess!)*

 

  1. Average new customer sale amount
  2. Average # of transactions per year
  3. Average # of years a customer buys from you

 

The equation to determine the lifetime value of a new customer (CLV):

The average sales volume for a new customer X # of times a year a customer purchases = customer value

Customer value X the average # of years your customers buy from you = Customer Lifetime Value (CLV)

Examples:

Gardener (example of a monthly service)

$90 x 12 months = $1,080

$1,080 x 5 years = $5,400

Gutter / Window Cleaning (example of a seasonal service)

$250 x 2x a year = $500

$500 x 7 years = $3,500

Contractor (example of a one-time service)

$5,000 x 1 = $5,000

Call us today! We are here to help create an advertising campaign based on your customers’ lifetime value and answer any questions you may have.

Pro Tip *

• Don’t worry about getting the data perfect. It’s better to guess and do it, rather than not to do it at all. We will have a Marketing Minute on the best ways to track your important information.

If you like this Marketing Minute, you will love next month’s tip, “How to Create a Marketing Budget.”

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