This calculator helps you answer the question “What is a customer worth to me over their life time” You may not know this value. We frequently find that business owners don’t. Knowing this helps you understand the answer to questions such as:
- 1) What you could be happy to pay to get a new customer.
- 2) What value there is in keeping a customer for longer
- 3) What value there is in getting customers to refer more regularly
You don’t need to be totally accurate with the info you input. You can start and refine it from there as you collect more data.
An Example – Mobile Mechanic
Let’s just assume you are a mobile mechanic and you are trying to work out the value of a new customer. You collect some data:
- Your average bill over the last 3 months was $580. This is made up from some routine car servicing arrangements and some bigger repairs. (Enter in A).
- You see your customers twice a year. (Enter in B).
- You are a new business, but you are estimating that your customers will stay with your for five years. Some will be with you for longer and some will move after a say 12 months and you will lose them. It’s a best guess, but you can run it again with 3 years and 7 years to see what happens. (Enter in C).
- Each customer gives you one referral to friends and family each year and you convert 50% of those referrals to customers. (Enter in D and E).
This gives you a life time value of a customer of $5,800 give or take (line G). Note this value does not discount for the fact that $580 earned in 5 years is not worth the same spending value as $580 today…but then again you would also be able to increase your prices with inflation.
The other interesting thing to note is how much value you get from customer referrals (Line I) and how much it can boost your total customer value.
This calculator also allows you to see the impact of increasing sales, retention etc.