How To Determine Your Customer's Value

This literally can be the most profitable thing you'll ever do for your business and that is to understand exploiting the actual value of your customer. It's been called the Marginal Net Worth and the Lifetime Value. What is the current worth of one of your customers or prospects? It's the total profit of an average customer over the lifetime that they do business with you. That includes all subsequent sales minus advertising/marketing and your fulfillment expenses. Let's say the average customer brings you $ per sale. They re-purchase more times in a year. Their average order amount is $. On each $ reorder, you make $ gross profit The average life lasts years. Every new customer is worth $. You reach the by adding the $ initial profit to the other purchases each year of $. Only $ is profit, so $ times equals $. If they do that for straight years, that's $ plus the original $. If this is our average customer and they're worth $ in profit and it only costs you $ through your advertising/ marketing expenses to get them, every time you spend $ you receive $ back . You would be foolish not to increase your advertising/ marketing and promotional budget to produce as many of these $ cost customers so you would spend $ over and over and over again to get $ back Theoretically, you could spend $ to get that customer because you know they will come back and spend $ and you will break-even. Of course, we don't want to do this. Remember, this is an average customer. Some will buy more and some will buy less This is an average number. Now you "know you can spend up to $. You could just as easily be spending % of your $ profit just to get that first sale because that's just the first sale's profit, and you'll still end up with $ over the next years. If you offered to give that $ service for free and it doubles your customers, it "would double your profits over the next years. One in business owners think about this You want to spend everything you can justify to bring in a customer as long as that customer costs you less than they earn you. If you can't afford to spend more than the entire profit from the first sale, remember you'll be making money just in a few months from them. Start out spending what your cash flow can justify. After a quarter or several months after their re-order profits come in, then you can step up your ad budget

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