CCG - Customer Lifetime Value

excerpted from
StrateScapes – Premiere Issue

Customer Lifetime Value
Would you rather have a once-in-a-lifetime customer or a customer for life?

We’re talking about potential. Every customer who walks through your door brings a lifetime of profit potential. Their experience will determine whether they keep returning or if their first time at your cash register is their last. Part of the challenge of marketing lies in capturing a greater share of every one of your customers.

Run the Numbers

You can use statistical models; however, there are drawbacks to traditional sampling and projection figures. Nevertheless, these results give you an idea of the average customer's lifetime value (LTV), and this information can still be extremely useful.

For instance, if you are in the supermarket business, choose customers representative of your customer base and calculate their monthly grocery bill. Multiply it by set increments of time, keeping in mind that you will be viewing an average lifetime value. Those customers shopping for a family of six will appear to have greater LTV than a bachelor. Therefore, calculate LTV on as individual a basis as possible. If this proves to be too cumbersome, at least attempt to calculate LTV by customer segments. Having this knowledge can greatly affect how you expend resources to retain each group.

Average customer spends $2,400 annually
Expected customer time span = 10 years
LTV = $24,000

A family of six spends $4,800 annually
Expected customer time span = 20 years
LTV = $96,000

A bachelor spends $1,200 annually
Expected customer time span = 5 years
LTV= $6,000

Lifetime value is a key element of relationship marketing. Understanding and utilizing LTV to its greatest potential will have a major impact in your relationship marketing efforts.

STRATESCAPES and STRATESCAPES SUPPLEMENTS are published by Customer Communications Group, Inc., a full-service agency specializing in relationship marketing and customer communications. Our comprehensive, turnkey services include data analysis, customer segmentation, strategic consulting, account management, creative execution, print production and multimedia solutions.