The Value Of A Customer

You need to determine what the value of a customer is to your company. Answer the following questions: How much will the average customer spend with you per year? A = _____________ If you provide quality service and products, how many years can you expect to keep a customer ? B = _____________ What is your gross profit, as a percentage of revenues? C = _____________ The value (V) of a customer is: V = A X B X C We learned with our network consulting company that the average life of a customer was about years and the average yearly expenditure was around $,. With a gross margin of %, each client was worth $ to the company. $, X . . = $ If you havent used this simple formula before, it can totally change how you view customer acquisition, retention and customer service. Normally youll want to spend about % of current or projected revenues on customer acquisition. This formula allows you to accurately project what a customer is worth to you over their customer life cycle. A valuable concept to learn and leverage is to go to great lengths to keep a good customer. The simplest and least intensive marketing efforts are those that you do for existing customers. Stay in contact, educate them on the excellent services you have provided them and the value proposition that you offer. Close Ratios The next important parameter is to calculate your close ratio. This means for every prospect you talk to, how many become customers? We had a close ratio of around %. With the above example, assuming a marketing budget of % of gross revenues per customer, we had $ to work with. With a % close ratio, that meant we could spend on average $ for every prospect we talked to ($.=$). This is a very useful tool for making decisions around how much time to spend on proposals, contact, lunches and other prospecting activities.