What’s a Customer Worth?

bigbuzz August 10th, 2009

About 1997 I began asking my radio clients “What’s a customer worth?”

It’s one of those questions every business owner and manager should know the answer to and a question every advertising and marketing professional should ask.

Few had and answer other than “What do you mean…I’m not sure.” or “ $58.76, pointing to the last cash register receipt.

Wrongo! Think long term. Think a life time of doing business with that customer. If your typical customer spends $58.76 with you each month he’s worth $681.12 per year. If you keep that customer for 10 years that’s $6811.20 if he spends the same every month and you never up sell him.

Here’s your assignment:

What is your average monthly ticket per month? (months total sales / # of sales)

Ex: $63,836 / 1542 = $41.40

What is the average life of a customer? Do you have customers return often over a long period of time or do they come and go like the wind? For our example let’s use 3 years and they visit once each month.

Ex: 36 months x $41.40 = $1490

Each customer is worth $1490 to you.

Ah but what if that person tells just one other person about you. That person’s value just increased. And what if that customer stayed 51 months or spent an extra $2 each month?

Or what if you upset that customer and they leave after 23 months or tell others not to shop with you?

You can see the variables that can effect the value of a single customer and the prosperity of your business.

For now start simple and do the math. What is a customer worth to your business?

We’ll delve into this deeper in the near future.