Surprise! Your customers may be worth \$1200 or more per year?
Knowing the lifetime value of a customer helps you estimate the volume of business you could expect from each new and existing customer.
Once you know how frequently a customer buys and how much he spends, you can budget reasonable dollars for marketing to existing customers and lead generation for new customers.

The simplest way to estimate lifetime value:
(Average Value of a Sale) X (Number of Repeat Transactions) X (Average Retention Time in Months or Years for a Typical Customer)
This is the average lifetime revenue of a customer. Some companies take this equation one step further and calculate the average lifetime gross profit or net profit of a customer.
For example, calculate the average lifetime value of a customer using the following assumptions:

• Purchases \$50 per month.
• Customers stay with your company an average of 5 years
• Customer makes an additional purchase of \$500 every year in addition to the \$50 per month recurring revenue.

The average lifetime revenue value of the customer is:

\$50*12*5 + \$500*5 = \$6,000 over the 5 year period or \$1,200 per year

Depending on your company’s gross margin or net profit margin, you can multiply the \$1,200 per year by these numbers to get you average lifetime gross profit or net profit value per year.
If your net operating profit is 12%, then the yearly net operating profit per customer is \$144.

That might not seem like a large profit. However, if you have 1,000 customers that equates to \$144,000 per year.

Discover how much your customers are worth…and take care of them so they stay!