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What is the lifetime value of a customer?

CEDR What is the lifetime value of a customer
Author: Kevin Leahy

In this era of transactional business, attention must be paid to the importance of securing and maintaining a lifetime customer.

Simply put, the lifetime value of a customer is a calculation of how much your customers will spend, how often they will buy and over what period they will be shopping at your business.

The formula to calculate the average value of a customer is (average sale amount) X (the number of purchases per month or year) X (the number of months or years the typical customer visits your business).

For example, if you have a restaurant and the average price for a meal is $20 and the average customer eats there twice a month for five years the value of that customer would be $20 X 2 X 60 for a total of $2,400.

Why is this important?

The main reasons lifetime value of a customer are important: creating a budget and determining overall level of service.

Knowing how much an average customer spends and how often they shop helps determine the revenue that the business can reasonably generate. It also helps determine an advertising expense budget including discounts and promotional items. No business can afford to spend more on attracting and keeping a customer than that customer spends buying from the business.

Not all customers are average customers, though. Some are excellent (high value) customers and others create more problems than the revenue they generate for the business.

Another key element for keeping a customer for a long period is to offer stellar customer service and ensure the entire staff is committed to this as part of the company culture.

Rude behavior toward customers is never okay if you want that customer, their family and friends coming back to your business.

If you observe employee behavior that is not in line with your company standards, immediately meet with that employee in a private setting to find out the circumstances. Communicate what you observed then listen to the employee’s explanation for why they behaved that way.

 
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CEDR What is the lifetime value of a customer

What is the lifetime value of a customer?

In this era of transactional business, attention must be paid to the importance of securing and maintaining a lifetime customer. Simply put, the lifetime value of a customer is a calculation of how much your customers will spend, how often they will buy and over what period they will be shopping at your business…

Read More »
Kevin
Kevin Leahy
Kevin has extensive experience in retail, having served 18 years as a senior executive at a national chain with more than 75 stores, as a retail store owner and partner in a national franchise.
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