Understand the Lifetime Value of a Customer

.When getting a customer, your goal is to keep that customer for life, make that customer come back again and again, and refer your business to others. Marketers actually have a term for this — the customer lifetime value.

Customer lifetime value is the present value of the future cash flows attributed to the customer relationship. Simply put, it is what your business can earn from a single customer throughout their lifetime.

Gil Effron in his book “How to Give Your Business an Extreme Marketing Makeover” provides the example of a man who entered a shoe store and tried on a $189 dress shoe. He looked around for the sales clerks for some nominal assistance, but found them busy chatting. He then left the store dissatisfied with the poor customer service without buying the shoes.

Did the store just lost a $189 sale? No. The concept of the customer lifetime value indicates that the store lost an entire lifetime of business from this man — considering that this man buys at least 2 shoes a year, buys shoes for his wife from the store and buys shoes for his kids.

As Effron wrote,

“Thinking in terms of lifetime value is one of the most critical commitments of any business … The ultimate goal of your sales process isn’t to make a single sale, but to gain a client for life, through repeat business, through referrals, and through volume of business that results from clients being so satisfied with you that they won’t consider doing business with anyone else.”