Will You Add? - Business

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eferrals made = estimated number of referrals the customer will make cost of sales = cost of goods x customer lifetime Just how much is that customer worth? Let’s put some nu

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Calculating Lifetime Customer Value

In my last article, I explained why it is important to focus on customer retention and left you with the formula for Lifetime Customer Value(LCV). I will now walk you through an example so that you can calculate your own LCV.

You will recall that LCV is the value of a customer to your company. It is a measure of how much profit the customer will bring to you over the life of the relationship that you have with that customer.

LCV = (sales per customer) x (estimated number of times the customer will reorder) x (number of referrals) x (percentage of referrals that become customers) – (cost of sales)

sales per customer = estimated average sale by customer estimated number of times the customer will reorder = customer lifetime number of referrals made = estimated number of referrals the customer will make cost of sales = cost of goods x customer lifetime

Just how much is that customer worth? Let’s put some num

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will now walk you through an example so that you can calculate your own LCV.

LCV = (sales per customer) x (estimated number of times the customer will reorder) x (number of referrals) x (percentage of referrals that become customers) – (cost of sales)

sales per customer = estimated average sale by customer estimated number of times the customer will reorder = customer lifetime number of referrals made = estimated number of referrals the customer will make cost of sales = cost of goods x customer lifetime

Just how much is that customer worth? Let’s put some nu

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g to you over the life of the relationship that you have with that customer.

LCV = (sales per customer) x (estimated number of times the customer will reorder) x (number of referrals) x (percentage of referrals that become customers) – (cost of sales)

sales per customer = estimated average sale by customer estimated number of times the customer will reorder = customer lifetime number of referrals made = estimated number of referrals the customer will make cost of sales = cost of goods x customer lifetime

Just how much is that customer worth? Let’s put some nu

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Not too long ago I was booked into a hotel which treated the guests as though they should be grateful to be able to stay there. The service left much to be desired, despite their great Citizen's Charter which was paraded everywhere and I made a mental note, as well as passing the word along, about not staying there in the future. Stuck in my room feeling cross and unhappy, I suddenly remembered a wonderful summer I spent in Stratford, Cana

eferrals that become customers) – (cost of sales)

sales per customer = estimated average sale by customer estimated number of times the customer will reorder = customer lifetime number of referrals made = estimated number of referrals the customer will make cost of sales = cost of goods x customer lifetime

Just how much is that customer worth? Let’s put some nu

Crisis Management
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eferrals made = estimated number of referrals the customer will make cost of sales = cost of goods x customer lifetime Just how much is that customer worth? Let’s put some numbers around this. Below is some hypothetical data from an online clothing store that sells trendy jeans, belts and accessories like rings, bracelets, earrings and necklaces.

annual sales per customer = $300 customer lifetime = 3 years number of referrals made = 10 percentage of referrals that become customers = 15% cost of sales = $180 x 3 years = $540
($300 x 3 x 10 x 0.15)-($189 x 3) = $1350 - $540 or $810 gross profit per customer

This means that the LCV is $810. By upselling and cross-selling, you can make much more profit from your existing customer.

What if you don’t have the data to calculate the LCV? Don’t worry, you can easily start with some guesstimates and refine them as you collect more data.

Calculate your LCV in 5 Easy Steps:

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Will You Add? - Calculating Lifetime Customer Value in 5 Easy Steps

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