Lifetime Value of a Customer: How it Changes Your Marketing Approach
Posted: Sunday, April 10, 2011
by Joy Gendusa
PostcardMania
Once you have determined the Lifetime Value of a Customer you can make better decisions when marketing to them.
In order to make intelligent marketing decisions, there are a few pieces of information that are "must-haves." One of those pieces is the Lifetime Value of a Customer. This is a dollar amount you apply to your customers based on how much they will be worth to you over the course of your business relationship.
This number will cause you to realize that some decisions appear bad, when in reality they are VERY GOOD! For example my company actually LOSES money on every first time order.
The trick is in the Lifetime Value formula. Return On Investment (ROI) isn't just what you make on the first sale. Even though we lose money initially, over the average lifetime of a client, we know we will make money — a lot of money.
Here's how to figure out how much a customer is REALLY worth to you:
1. Know the Numbers
Start by gathering this crucial data:
a. Average initial ticket price (how much they spend when they first buy from you)
b. Average reorder ticket price (the average ticket price of a re-order)
c. How many times they re-order from you in one year
d. How long a customer is retained (5 years, 10 years, etc.)
2. Apply the Formula
Dust off your algebra book. Using the letters above, plug your numbers into this formula: A+D(BxC)=???
For example:
Initial Ticket Price: $500
Reorder Ticket Price: $99
Number of reorders per year: 4
Average # of years a customer is retained: 5 years
The formula will play out like this:
500+5(99x4) — Multiply 99 and 4
500+5(396) — Multiply 5 and 396
500+1980 — Add 500 and 1980
2480 — Finished!
The lifetime value of the average customer in our example is $2480. Now you have to figure out what it costs you to acquire a new customer and what you should be spending.
About Joy Gendusa:
Joy Gendusa founded PostcardMania in 1998 with a phone, computer and no capital investment. PostcardManiais one of the nation’s most effective postcard marketing companies specializing in lead generation for small to large-sized businesses. They have been featured on the Inc. 500 and 5,000 lists and offer complete direct mail marketing campaigns with graphic design, printing, mailing list acquisition, mailing services, website development and email marketing services — all while continuing to educate clients with free marketing advice. PostcardMania serves more than 40,000 customers in over 350 industries printing over 4 million postcards every week.
You can find out the Lifetime Value of your customers with our free Lifetime Value Calculator. All you do is fill in the blanks and our calculator spits out your answer!
For the Lifetime Value Calculator go to http://www.postcardmania.com/customer-value/index.php?hp=1
This Article has been viewed 140 times. (Not updated in real-time.)
No comments yet.We want your comments! If you can read this, you don't have javascript enabled, so you can't use this comment system. Please enable javascript.