If you sell just one product, the price of that one product is $20 and customers never come back to buy the product after their initial purchase, the value of each customer is $20. If you sell multiple products or your customers make repeat purchases, the value of your typical customer is going to be the total value of their purchase over the number of weeks or years they buy from you
That lifetime value is critical to understand because it lets you determine how much you can afford to spend to acquire new customers. If each customer is only worth $20, the money you can spend marketing to gain new customers is going to be next to nothing. But, if a typical customer buys from you repeatedly and spends more than $1000 you may find it profitable to spend $20 or more to acquire a new customers because you'll the profit on future sales.
If you have never figured out the lifetime value of your customers, take the time to do so today. Compare the lifetime value to your cost of customer acquisition. Use the comparison to help you plan advertising and marketing expenditures for the rest of the year.
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This only looks at and calculates direct sales. What about the number of referrals the happy $20 customer may make?
Posted by: Ann on March 5, 2008 at 2:30 PM