What is the lifetime value of a customer (CLV) to your business? And why is it important to know?
If nothing else, knowing a customer’s value over time quantifies the point that keeping a current customer is a whole lot less expensive than finding a new one.
There are some industry standards for average numbers on a national basis. Whether you make a few big sales or a large number of small sales, you can determine the lifetime value of a customer.
For instance, the lifetime value of a Chiropractic patient is $7,500 according to Billing Precision, LLC. The figure is derived from an annual patient value of $1,500 and the current average of 5 years that a patient remains with the practice.
For a Dental practice, the lifetime value of a patient is $22,000. That is according to Derek Naylor, a consultant on Dental Practice profitability.
A supermarket customer’s lifetime value runs from $179,665 to $318,831 (source: Customer Lifetime Value, V. Kumar, University of Connecticut). Any wonder why they are so eager to have you carry one of those “customer loyalty” cards that give you discounts for shopping with them?
And while lifetime CLV is important, that data gathered for that purpose can tell you other useful things, like…
What is a customer’s annual value?
If your average sale is $20 and those customers average 2 visits per month, the annual value of the customer is $480. You can do the math for your business by dividing monthly or yearly revenue by the number of customers who make have made purchases in that period.
What does a new customer cost?
Cost of acquisition of a new customer is a critical factor in your success. For instance, it costs Amazon.com over $30 for each new customer they cultivate. The average sale at Amazon is $17 so if they relied on “one-time” customers, they would soon be out of business. But Amazon’s customer retention rate is one of the best and there break-even point come at just 1.9 purchases.
So Amazon can count on repeat purchases by newly acquired customers and that is what makes their customer cost of acquisition work for them. Do you know what it costs to acquire a new customer for your business?
This measure can give you an indication of what you can afford to pay to acquire a new customer. Customer acquisition cost certainly shouldn’t exceed the lifetime value of that customer and ideally, it should cost a fraction of the the customers lifetime value, thereby insuring your long-term profitablity.
It is MUCH less costly to keep the customers you have instead of always having to cultivate new ones. Loyal customers are the backbone of any business. You still have to pursue new customers, but the income generated by the repeat business of your loyal customers can offset that cost.
Which brings us the the graphic at the left. Email is a great way to stay in touch with your customers, remember them on special days and make them feel special by inviting them to “customers only” sales and events.
A well-designed email “Customer Retention Program” can keep your business viable during down times and increase profits during good times. Notice that I said “well-designed” email program. A poorly designed campaign can radically reduce the effectiveness of an email program.
Talk to us today about building your email “Customer Retention Program” and profit from it for years to come. Call Bob at 859.544.9005, email or use our fast response form.
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