Discovering Lifetime Customer Value: What are Your Customers Really Worth?

Small business lifetime customer value

You probably have a pretty good idea how much an average customer spends in a single visit to your business. And according to the Harvard Business Review, it can cost five times more to acquire a new customer than to retain an existing one. Plus, you also know that customers can bring in more dollars beyond the initial sale. Repeat visits, referrals and recommendations, and additional products and services all add up over time. So the total amount that each customer is worth to your business is called your Lifetime Customer Value.

When you’re delivering great service and a quality product, you can expect each customer to represent an opportunity for:

  • Initial sale – those everyday, routine transactions (For example, a local veterinarian can expect a regular checkup exam for each customer’s pet)
  • Repeat sale – when they come back to your business because they like and trust you
  • Up-sells – additional purchases on top of routine sales (ex: grooming aids with the exam)
  • Special purchases –  significant but not routine sales (ex: teeth cleaning or surgery)
  • Word of mouth referrals –  new customers who have been referred by friends, family and neighbors who are your existing customers

As you can see, there are many different revenue streams that all come from a single customer. So let’s take a closer look at the formula for calculating the Lifetime Customer Value for your local business.

How to Calculate Lifetime Customer Value

We’ll use our veterinarian for the sample formula below:

Now swap out these sample numbers and use data from your own local business. What does your Lifetime Customer Value look like?

Knowing how much each of your customers is worth is an essential foundation for making critical decisions about the way you acquire and retain customers. Having a clear benchmark for your Lifetime Customer Value helps you:

  • determine how much to spend to get a new customer
  • focus your marketing budget on the most cost-effective tactics
  • develop plans to increase repeat business
  • create programs to reward customer loyalty
  • offer incentives to drive referrals

So what’s the first thing you’ll tweak now that you know your Lifetime Customer Value? Let us know in the comments!

ReachLocal

The ReachLocal online marketing blog shares practical tips and advice for those who want to reach local customers online. Learn about online marketing from our in-house experts and thought leaders.

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