1) HOW MUCH DOES IT COST TO GET A NEW CUSTOMER?
2 ) WHAT IS THE LIFETIME VALUE OF A CUSTOMER?
A lot of small businesses look at the first number to help calculate what they spend on marketing, but without knowing the second number, it’s impossible to calculate if the first number is good or bad!
(Just in case you’re thinking, “I get customers using social media and that’s free”, don’t kid yourself. Social media marketing takes time, and your time is the most valuable resource in your business so charge it out accordingly.)
Why is customer lifetime value important?
We all know that it costs up to seven times more to get a new customer than to keep existing ones.
That’s why knowing the lifetime value of your customers is central to a healthy business model.
Customer lifetime value calculation
There are numerous ways to calculate CLV that vary in complexity depending on your type of business.
A good place to start is with these numbers:
- Average monthly transactions per customer
- Average order value per customer
- Average profit per customer
- Average customer lifespan
When you know the average profit over the life time of a customer it will give you a good idea of how much to spend acquiring new ones and how much effort to put into keeping them!
(Please note: this is a simplified version for small businesses that are just starting to look at these numbers.)
Without knowing the lifetime value of your customers, you could be spending more on getting new ones than you are likely to earn back from them.
Don’t stick your head in the sand. Knowing these numbers will help you to make more profit!
If you’d like help calculating the lifetime value of your customers and the cost of acquiring new ones, please just contact me and we can talk about what’s involved.