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How to Calculate Customer Lifetime Value

Are you aware of the lifetime value of a customer?  Do you know how to calculate a customer lifetime value? It’s time you gave this some serious consideration because customers are the king. They can make or break your business and there’s no two ways about it.

If you already appreciate this, then I can bet you take extra care of each and every customer. In case you do not appreciate the customer lifetime value here is a simple formula that might convince you of their value. Let’s see how it works.To find out the customer lifetime value, one simply needs to know two pieces of information.

  1. What does the average customer spend with you each year.
  2. How many years the average customer does business with you.

By simply multiplying these two numbers together you will have calculated the customer lifetime value. For example if you have a petrol station and your customer fills up their tank once a week at $60 per week Information piece number 1 would be $3120 (52 weeks @ $60 per week), and if they live in the area an average of 8 years and use your station for their fuel Information piece number 2 would be 8. Multiply the two numbers together $3120 x 8 equals $24,960 of customer lifetime value.

You can now begin to appreciate that customers are like gold, precious! So now when you fob off a regular customer wanting to pay for their fuel whilst you have a chat with a fellow staff member… you need to appreciate just how valuable a commodity your annoying behaviour is upsetting. It is not just a $60 sale but rather a $24,960 customer.

It is so important to implement and build strong customer relations. Better still why not deliver world class customer service.. Business research repeatedly shows it is much more difficult to attract and attain a new client than it is to keep an existing customer, it simply requires appreciating their customer lifetime value and treating them accordingly.

It is also worth keeping in mind that our competitors are striving to take away our customers, particularly the ones with the highest customer lifetime value, so we need to respect and appreciate them and not cheese them off.

We must make it a top priority to thank our customers for their business. It is our duty.

Remember you are not just thanking them for their transaction but for their customer lifetime value.

So do the research and then the calculation (average customer spend x average years as a customer) and begin treating customers with the right mindset and for what they are really worth to your business.


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