Lifetime Value

February 9, 2007

While I have discussed this concept in a few earlier posts, I feel it is such an important concept that I wanted to elaborate further on how to apply it to your thinking.

Lifetime value is simply the “profit” your Company makes on a customer over his/her lifetime.  The simple example is if you sell Chevrolet cars and a 20 year old buys a car from you on which you make a profit of $500, that individual provides you with a potential lifetime value of $10,000.  This  assumes he/she buys a new car from you once every three years for the  next 60 years.  Of course, if that person gets married and needs two cars, then their lifetime value doubles to $20,000. 

Can this “model” be applied to all products and services?  Yes it can as long as the product/service is not a one time only purchase.  So it can be applied to restaurants, toothpaste, haircuts, computers, etc.  Yes, anything.  Obviously, the lifetime value of each product or service will vary.  But I think if you apply this concept to your products/services you will be quite surprised at the “value” of each customer.

Once you establish this “lifetime value” it brings into focus the importance of customer satisfaction.  With a high lifetime value, you need to do everything possible to keep that customer for his/her lifetime.  Improving your product/service, extraordinary service, special unexpected surprises, etc., are all ways to accomplish this task and I have talked about many of these in the past.

The key is keeping your customers loyal to truly see the benefits of their value over their lifetime.  Remember it is always easier to keep a customer then to get a new customer!

 Rich

Bizvice:  Strategy, Marketing & Entrepreneurship

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