Discovering Lifetime Customer Value
Nothing is more important to your bottom line than getting new customers, but you need to know what a customer is worth to determine how much you are willing to spend to acquire one. By calculating Lifetime Customer Value (LCV), you can determine the potential dollar value a customer will contribute to your business and capitalize on the full potential of your current and prospective customer base.
Most industry experts agree that it costs five times more to acquire a new customer than to retain an existing one. So, when thinking about how much a potential customer is worth to you, it’s important to look beyond the initial transaction and estimate the total value that customer can potentially bring to your business over time. With this information, you can better decide which.
Each New Satisfied Customer Should Result In:
- Initial Sale, e.g. a customer visits your business for a routine pet exam
- Repeat business, e.g., the customer returns for a second check-up or shots
- Up-sell, e.g., the customer purchases flea medicine after a routine visit
- Special purchase, e.g., the customer brings their pet in for a one-time teeth cleaning
- Referrals or word of mouth, e.g., the customer tells a neighbor with two pets about your clinic
How to Calculate Life Time Customer Value
look at the example, Lifetime Customer Value calculation to the right for a veterinarian client. This calculation helps you determine the potential lifetime value for one client, including special transactions, repeat business (additional visits) and referrals (a client with two pets).
Customer Lifetime Value = (Customer Value * Average Customer Lifespan) To find CLTV, you need to calculate the average purchase value and then multiply that number by the average number of purchases to determine customer value
Lifetime Customer Value Calculation
Marketing Strategy & Customer Value
Calculating a customers lifetime value helps you gauge the ROI of your current marketing efforts and decide which tactics will best help you acquire and retain profitable customers. Knowing your average LCV should help you answer critical questions like:
- How many new customers do i need ?
- Am I spending too little? Too Much?
- What specific medium is driving the most ROI?
With the right information you can manage the right marketing mix and drive more return on your investment.