What is the lifetime value of one of your customers or clients?
It’s a simple question, but it’s not always the easiest to answer. Knowing the lifetime value of a customer allows you to establish a baseline for the expected value of a new customer, which is handy information to know when creating marketing and sales strategies.
So, how do you find the lifetime value of a customer? With our nifty Lifetime Value calculator.
We took all the hard work (math) out of calculating lifetime value. All you need to know are the numbers for each field below.
That’s it. Lifetime value is actually a pretty simple multiplication problem:
AVG Purchase Price X # of Purchases a Year X # of Years Customer Stays = Lifetime Value
There are a few more questions you can ask to determine lifetime value:
- Do we have an “average customer,” or should we segment into multiple different “average” buckets?
- Do we have heavy-user customers? Did they start out that way, or does a certain percentage of your casual customers become regulars?
- Regardless of purchase frequency, are there customers who purchase way more? A mom of family of five vs. a single person at a grocery store or the person booking for a large group?
- How many of these damn sheets should I fill out?
Knowing the lifetime value of a customer (or different customer segments) can be useful for any business. We’ve found it to be powerful in determining reasonable customer acquisition costs (CAC), where it can really change outlooks on how marketing efforts should be focused.