Calculating Average Lifetime Value of A Customer

calculating lifetime value of a customerWhat is a customer worth to your business?  Knowing what a customer is actually worth to you helps you determine what cost you might expect to pay in getting one and keeping them. If you don’t know the average lifetime value of a client, here is the simplest way to estimate it.  To get the most precise number, you also have to consider the cost of getting a new client and a few other factors but for our purposes today, this calculator will work just fine. If you need to know how to get the actual number see this article from Entrepreneur.

Here’s all you need to do for now.  Follow these easy steps to find out what just one new client is worth to your business.  Use this simple formula for right now, this will tell us what we need to know for now.

  1. First, come up with a dollar amount, your best guesstimate, of what an average customer or client spends per visit.
  2. Now, estimate an average of how many times you see that client per year.
  3. Lastly, on average, about how many years do you expect a client to stay with you?
Now we just do a little multiplication.

For our example,  Let’s say you said an average client spends $100.00 per visit and you see them 3 times a year.  Let’s say you take pretty good care of your customers and your business does a good job of retaining clients.  A conservative estimate might be  an average of 5 years.

$100.00 x 3 visits per year = $300.00

$300.00 x 5 years = $1500.00

So for purposes of this example, $1500.00 is the average lifetime value of your client.  That is what each of your customers are worth to your business and gives you an idea of what you might budget for obtaining new customers.

I’m sure your numbers will be different than those above but without a calculator, I like easy math.  You’ve got the idea I’m sure.  The important thing is for you to know what a value a new client brings so that you can figure out the ROI (return on investment) so you know where to spend the biggest chunk of your marketing dollars.

Happy Marketing,

Leigha

 

 

 

 

 

 

 

 

 

 

 

 

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