Customer Value

customer lifetime value

Whilst customer satisfaction is crucial, it's also important for your business to know how to quantify customer value.

It costs your business to make your customers spend

But it will cost you more if they don’t. It is widely reputed that the cost of acquiring new customers is much higher than retaining existing customers, but knowing what value a customer brings to your business will enable you to strategise and quantify what resources to allocate in attracting them.

Looking further ahead

Many marketers focus on the short term costs of customer acquisition, but this is marketing myopia and means their annual budgets will be an ever decreasing circle. Analysing beyond the first purchase is key to identifying customer value and identifying the lifetime value of a customer. This isn’t always the case as not every product or service provider has a repeat-customer based business model.

If we take a hairdresser as a prime example many are put off pay-per-click advertising as it may cost £10-15 (as an arbitrary example) to acquire each customer and with an average haircut cost for ladies of £25 in 2017, the costs seem preclusive at 40-60% of turnover. If however the average customer stays with the same hairdresser for several years and visits once a quarter, that £10-£15 soon becomes insignificant to a customer whose repeat business, or lifetime value, is worth in excess of £500 (or 2-3% of turnover).

It’s not all about a loyalty schemes

Loyalty, or retention, isn’t the safeguard of the big supermarkets who offer points cards or other incentives, it can come down to simply providing excellent products or services and treating the customers with the value their lifetime deserves. Ignore customer retention at your peril or your marketing budgets will always be under pressure if acquisition doesn’t perform. But remember that true retail loyalty is also impossible to achieve; take a look at a lot of people’s key-rings or wallets/purses and they seem to be loyal to pretty much everyone which kind of undermines the marketing proposition.

Every little helps

This handy infographic outlines some handy stats about customer acquisition vs retention and customer value.

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