The greatest asset to your business is your Customer, specifically, your Customer Lifetime Value.In my many years of Sales and Marketing, I've met many CEOs and business owners who don't have much clue as to what Customer Lifetime Value is, much less its importance and
impact it has on their bottomline. To most of them, what matters most is to increase revenue by continuously acquiring new one-shot customers.
This's one of
fatal mistakes that many business owners make; it's a sad scenario, but it's also
reality. Let me tell you something: it'll cost you 5 times more to attract a new customer than it is to bring one of your past customers back to you.
I don't know you personally, but if you're a smart business owner, you'll understand that every cent you invest in advertising is going towards acquiring new customers. You'll also realise that once you've acquired
customers, you just can't afford to let them go.
-------------------------------------------- So what's Customer Lifetime Value? --------------------------------------------
Customer Lifetime Value is defined as
total value, in monetary terms, of your average customers spanning
entire period that these customers are likely to do business with you. It's
potential contribution of your customers to your business over a period of time.
Here's how to calculate your Customer Lifetime Value:
1). Let's say you've 2,000 steady customers and these customers remain with you for an average of two years; for
past two years, your net profit was $700,000.
The Customer Lifetime Value can be calculated as: $700,000/2,000 = $350.
What this means is that over an average customer lifespan of two years, each new customer you could acquire and keep is worth $350 to you in profits.
2). If you don't have
actual figures, you'll have to estimate. As
Customer Lifetime Value will have a significant impact on your bottomline, my advice is that you be prudent and conservative in your estimation.
------------------------------------------------- Why is it so important to you and your business? -------------------------------------------------
Lifetime Customer Value is important to you and your business for
following reasons: