So you managed to get that customer to buy from you! You made the sale… and is that all? Not at all; it is an error to consider that a customer is only worth the profit you get from that one sale. Have you considered this customer could be repeating and then buying again from you? Yeah!
In fact, the type of customers we like are those that buy (and pay), and repeatedly in time will be buying again and again. However, no love story is for ever, and your customer will end up buying elsewhere (at least, the average customer will do); do not take it personal, but there are many reasons that this will happen, and marketers should know at which rate your business loses customers (i.e. fidelity, retention).
If you consider this cycle, you are capable of calculating the average profit per customer _which includes the fixed initial acquisition cost (how much have you spent to gain that customer)_ and estimate the average customer life (as your customer), then you should be able to calculate how much a customer is worth to your business: the customer lifetime value (CLV). Analytically is an easy task, just a matter of calculating the net present value of future income and costs associated to the average customer. Of course, you should be doing this calculations for every one of your customer segments.
A double error would be not just forgetting to account for the customer’s lifecycle value but the intangible value of this customer as well. Is s/he happy enough or satisfied with our product or service to become a brand advocate? Is s/he important enough to his/her peers, colleagues and relatives to spread the word? These are just simple questions with no actual simple answers. Then, stay in touch and I promise we will be providing you with further information on these issues. In the meantime, you can contact us if you would like to know more about it.