What Your Customers are Worth (and Why it Matters)
What is the value of a customer? What profit can they bring this week? This year? Over a lifetime? It may seem like a simple concept, but many small businesses have no idea what a regular customer is worth to their business. This creates two problems: Uncertainty about effective marketing. What is the number of new customers you'd like to attract and what is an appropriate budget to do that? Defining a customer value will guide your marketing strategies! Ambivalence regarding customer retention. With a metric for measuring customer values, you can navigate appropriate parameters for retaining them or expanding their business. Research shows that increasing customer retention rates by merely 5% increases profits by 25% to 95%! Customer Lifetime Value While there are many complex formulas for calculating a Customer Lifetime Value (CLV), a basic approach is to break calculations into five digestible portions, like this: Average Order Value (AOV) . On the