How do you work out what a customer is worth to your business?
Work out what an average customer brings in over a year, or over the whole time they stay with you, then subtract what it costs you to serve them. That figure, the value of a customer, tells you how much you can sensibly spend to win one. Without it, every marketing decision is a guess.
A simple way to work it out
- Average sale: what a typical job or order brings in.
- Repeat purchases: how many times a typical customer buys from you in a year.
- Length: how many years a typical customer stays.
- Referrals: whether customers tend to send you others.
- Margin: what is left after the direct cost of doing the work.
Putting it together
Multiply the average sale by how often customers buy each year and by how many years they stay, then apply your margin. Use your own records, not a guess, and use the typical customer, not your best one. Add a note on referrals, even if you cannot put a number on them yet.
Why it matters for marketing
Once you know what a customer is worth, you can judge any channel by its cost per new customer. A channel that costs more per customer than a customer is worth is losing money, however busy it makes you look. A channel that costs much less is one to grow.
Keep it current
Work it out once a year, or when your prices or services change. Different services can have very different values, so work it out per service if you sell more than one.
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