Understanding Acquisition Costs and Lifetime Value of a Customer

  • Feb 6, 2017

How Much is a Loyal Customer Worth to You?

determining lifetime value of a customerAustin, Texas: What is a loyal customer worth to you?

Before you answer that question, you  would need to do an analysis to determine not just the value in a year, but over the lifetime value of that customer.  You may also want to build in referral value from that customer, if you get a great deal of your business from referrals, as most of us do.

Once you remove costs to service this client, you have a pretty good idea of the average lifetime value of a regular customer–and hopefully you can run your numbers to gauge the lifetime value of a loyal customer.

Once this number is established, you can determine maximum acquisition cost for trying to attract each of these customers.

Know that exact figure and post it on your wall and on your computer — as it will determine your spend on all marketing efforts to attract AND retain your customers.

Now, when you budget your Google AdWords and your SEO strategies, your trade show budget, your promotional item expenditure, sales and service costs, Holiday gifts, follow up expenses, etc.– you will have a more accurate number in mind.

I get dozens of calls per week where my client has no idea of their what they want to spend on their promotional gifts for an up-coming trade show or for Holiday gifts.

Often I hear something like, “What is the cheapest power bank you have?” or ” Do you have any real cheap earbuds we can hand out?”

When I ask for a budget, many are ill prepared for it.  To help narrow things down for them, I may then ask about the goal for the promotional item, what the lifetime value of a good customer is, how they will be tracking these leads, and many are even less prepared for these questions.

Why give the “cheapest” gift if the lifetime value of a customer is at a substantial number? Will that impress them or make them think more highly of your brand?

What does a cheap gift say about your company in the first place?

I have written extensively on the fact that not all customers and prospects are equal–and thus should not be treated the same way.

Determine the lifetime value of a good customer and work backwards to see how you can  attract more customers like this, get more referrals from them and retain more of them.

Good numbers don’t lie. Value those clients that bring you the most potential and realized profits — and spend to acquire more just like them.

Happy Promoting!