What’s the true value of a new customer to your business?
This can be a hard question to answer if you offer multiple products or services. You’ll need to do some math.
On a very basic level, you can look at the number of customers you served in the last year and your total revenue for the year.
Divide your revenue by the number of customers you served, and you have an average of the value of your customers for the last year.
Lifetime value is a little more complicated, so let’s talk about it.
Many customers will make more than one purchase over their lifetime with your business.
For example, let’s imagine you are a furniture retailer. Today a customer may walk in and purchase a new bed. Next year, they could return for a dining table and chairs.
Each additional product or service that you sell to a customer, pushes up their lifetime value.
As you look at the purchasing history of your customers, you’ll be able to work out an approximate lifetime value for a new customer that finds your business today.
Why does lifetime value matter?
When you know how much a new customer is worth to your business, it makes it easier for you to carry out advertising and marketing activities.
If someone was to say to you today, that they could give you a brand new customer for $5,000, would you say yes?
I’m going to assume that you’d at least stop and think because $5,000 is a lot of money to most people.
Let’s change your thinking for a moment though…
Perhaps a new customer to your business has an average lifetime value of $25,000.
How does that $5,000 sound for a new customer now? It’s a much easier decision right?
This is why it’s really important to know the value of a customer. It will help you to make better and more informed marketing decisions.
When you next get a few minutes to work on your business, I highly recommend taking some time to start thinking about what a customer’s lifetime value is to your business.
Even if you just take a simple average from the last year of sales, it will still give you some useful data to start working with.
Next time someone asks you what a customer’s true value is to your business, you can confidently smile with the new knowledge that you’ve gained.
Carrying out advertising or marketing won’t be scary or challenging in the future. Everything you do will be backed by your data and not guesswork or hopes.
