Customer Value & Ad Planning : Lifetime Value Of Customer

What Is One Customer Really Worth To Your Small Business
By: John Mahoney

Every small business owner and manager needs to know this number. You need to place an annual or lifetime value on each customer who buys your product or service. Here is an example of what I am talking about:

Some years ago a burger restaurant placed a $100 coupon ad in a newspaper for whom I worked. One ad: two offers. Cents off on a hamburger or cents off on a milk shake. Or both.

A few days after the coupon ad ran, the sales rep stopped by the restaurant to check results. The burger meister was not happy! Only 17 hamburgers and 18 milk shakes were sold off the coupon, a total of 35 returns.

The burger meister often worked his own counter so we knew that he had a good handle on the daily flow of his business. We asked how many NEW customers came in from the 35 returns. His guesstimate was 20.

In our ensuing discussion, the burger meister shared that his average customer spent $6 per visit and returned to his burger haven approximately once a month.

Using his numbers, this means that if the food and service meet the expectations of each customer, the meister could expect 240 visits from the 20 new customers in the coming 12 months.

240 visits x $6 average ticket equal $1,140 of incremental revenue in play. $1,140 is a very decent return on a $100 investment!

And that is assuming that each of these new customers come in alone and that they do not tell anyone else how great the burgers and milkshakes are at the meisters!

Over-simplified? Perhaps, but this true-life example deals with two of the keys to making a small business grow and thrive:

1.Knowing what your customer is really worth.

2.Making sure you DELIVER on your value promise
each and every time the customer crosses your
threshold.

Lifetime customer values are frankly best suited for larger tickets-- vehicles as an example. Let us surmise that the average vehicle owner from age 35 to 59 buys a different vehicle every 4 years. In 24 years that equates to six vehicles --a conservative number for sure! Use your own numbers and assumptions.

Let us further assume that this average customer buys both new and used vehicles equating to an average ticket of $20,000. Another conservative number!

The lifetime value of the customer in this example is $120,000. That is what the real sales pros see when a prospect walks through the front door of the dealership: $120,000 in 2-foot high red letters blinking off and on above the head of the prospect!

Too often small business owners measure only the immediate sale from a given ad or promotion. That is short sighted. It is the lifetime value of each customer that is important.

The real value underscores the crucial importance of over-the-top- service and consistency in your customer dealings. These are the two key elements that will allow you to leave your competition in the dust, even the Zillion Dollar Goliaths!

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About Author
John Mahoney
Bob Schumacher books and articles give entrepreneurs a clear coffee-shop English perspective on how to steer their business or profession into the top 20% who achieve 80% of the business and profits. Visit http://www.20do80.com for a complete directory of his articles and books.