During the last episode of the AskBizShow someone asked: How do you know what your lifetime customer value is? This was a great question and one I needed to look deeper into.
But first, why do you need to know what your customer lifetime value is? The biggest reason is to know how much to invest into the average customer. The higher the value of the customer, the more time and attention is worth spending on them. But your customer value could differ greatly from business to business.
Here is a simple formula for coming up with the lifetime value of your customer:
(Average Value of the Sale)X(Average number of repeat transactions)X(Lifespan of customers).
Now to come up with all of these numbers will take some time and research. Look at your sales reports or your CRM tools to see how many customers you are working with and what the average transaction price is. This value may vary based on the products they buy from your company.
For example, someone who orders some laser cut products from me is a much smaller transaction value or someone who buys a website. But there are fewer websites sold becuase they are an investment. Spend some time investigating this number, interview some customers to find out about their habits.
The more you know the more accurate a number you can come up with. When you have that number, you can then look at ways of either scaling up or scaling down the things you do to retain customers. Retaining customers is almost always cheaper than finding new ones. You may also reveal a need to increase your prices to make sure you are profitable. More information is valuable to your business!
https://www.entrepreneur.com/article/224153
