Do you know how much each new customer lead is worth to your bottom line? You may have heard this before and asked yourself, “Why is this important to me and why should I take the time to figure this out?”
Because if you know what ONE CUSTOMER is worth to your business, you can strategically invest in new customer acquisition…which translates into more sales…which means more $$ in your pocket!!
This unique number is one of the basic (and most overlooked) foundations to knowing how many customers your business needs to break even and then make a profit. With this information, you begin to make smarter, more informed decisions that will allow you and your business to Simply Survive or Exponentially Thrive.
To find this unique number for your business, first we’ll need to define the term ‘Customer Lifetime Value’ or ‘CLV’. Simply put, this measures how much money your business gets to keep (Net Profit) from any given customer.
To calculate it, you’ll need to determine how much money you receive from a customer (Gross Profit/Revenue), then subtract out the money spent on serving them (Expenses/Cost), and adjust this number for time value of money.
To calculate your CLV, you’ll need to know these numbers:
- What is the dollar amount of your ‘average’ sale?
- How many times per year will this customer buy from you?
- How many years will this customer typically do business with you?
- How many referrals will this customer give you?
- How many of those referrals (percentage %) will then also become customers?
If you don’t already have data to get these numbers, don’t worry…just ‘guess’ and ‘estimate’… sooooo…’GUESSTIMATE’! 😉 That’s right! You have to start somewhere, so give it your best educated guess! (As you do, I’d suggest that you not be overly-optimistic with these numbers and to guesstimate on the low side. Better to start out a little cautiously and potentially make an extra buck or two than to approach this too aggressively and lose money.)
Now that you have those numbers, enter them into one or more of the CLV calculators below and you’ll have a much clearer understanding of what a customer is worth… in DOLLARS (…Pounds, Lyra, Pesos, etc)… to YOU and your bottom line!
My Top 5 Customer Lifetime Value (CLV) Calculators
(explanation only for manual calculation)
Uber-Geeky Economics Major-type 😉 :
(with downloadable Excel spreadsheet)
Do you have a favorite CLV calculator I haven’t included here? Comment with a link and it may end up in a future post crediting you as the source. 🙂