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Customer Valuation

Customer Value

​Customer Value is the single most important metric for understanding your customers and developing a marketing plan.

What's amazing is not a single online advertising agency that we have seen discusses this with their clients and its so IMPORTANT!

Customer Value helps you make important business decisions about sales, marketing, product development, and customer support. For example:

  • Marketing: How much should I spend to acquire a customer? 
  • Product: How can I offer products and services tailored for my best customers?
  • Customer Support: How much should I spend to service and retain a customer?
  • Sales: What types of customers should sales reps spend the most time on trying to acquire?

Of course these are all important but for our purposes we want to focus on Marketing and how much you have to spend to get a new customer.

The first step to finding this out is to figure out what a new customer is worth. ​​

Why is this particular number so important?

Mainly because it will give you an idea of how much profit your business can expect to receive from sales to a specific customer during that customer's lifetime.  Which in turn will help you decide how much you’re willing to spend to “buy” that customer for your business.​ 

Once you know how frequently a customer buys and how much he or she spends, you will better understand how to allocate your marketing dollars.

The simplest way to calculate the customer value is to divide the net profit by the number of customers.

EXAMPLE

For instance, if your business makes $110,000 in revenue and has $10,000 in total expenses, the net profit is $100,000. If that revenue was generated from 100 customers, the value of a customer is $1,000.

This means that at the very least a new customer to you would be worth $1,000!

We say "very least" because that doesn't include repeat sales and referrals for those business that have longer repeat business cycles like attorneys and real estate agents. ​

​So if you know that a new customer is worth $1,000 then you know that to break even you can spend up to $1,000 to acquire a new customer.

Plug your numbers into the following equation:

(Average Revenue) - (Average Expense) / (Average Number of Customers)

Now that you have your Customer Valuation lets move on to your Goals.

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