During our sales discussions we often ask companies what a new customer is worth to them. While most agree that there is significant value few understand what their true value is. If you fit into this crowd we have a solution for you. An extremely easy process for determining what your customers are worth to you.
To calculate the total value of a typical customer you'll need to run a simple calculation. Lifetime value is the amount of average purchase, multiplied by the frequency of purchase, multiplied by the length of relationship.
LTV = Sale Value x Sale Frequency x Length of Contract
- Example 1 - You sell monthly services contracts averaging $10,000/month and you retain them for an average of 2 years. LTV = $240,000 ($10,000 x 12 x 2)
- Example 2 - You sell large-ticket items (we'll say new cars at $50,000 average). Your industry data reveals your ideal customers purchase a car every 5 years over 25 years and your sales history proves 50% repurchase rate because 'you build customers for life'. LTV = $125,000 ($50,000 x 5 x .5)