Your rate of customer retention will mean the difference between being profitable and simply surviving in today’s marketplace. Money walks out the door with each customer you lose so it’s more important than ever to make sure that your employees know what a customer is worth to your organization. We call this the Lifetime Value of a Customer or LVC.
If you haven’t already done so, calculate the average sale in your organization. Multiply this by the average number if times a customer reorders from you. Now multiply this by the average amount of time a customer is active with you.
Here is a simple example of the equation.
Say the average sale in your company is $100 and on average a customer buys from you twice a year. This means that a customer, on average is worth $200 a year to you.
If the average customer actively buys from you for a period of 5 years, the Lifetime Value of a Customer in your organization is $1,000.
So, putting a dollar figure on your customers may help your employees understand the importance of good customer service and how it relates to the firms profitability and ultimately their jobs and salary increases.
Have you put a dollar figure on your customer and figured out their Lifetime Value to your organization?
We’d love to hear your thoughts by commenting below.