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Lifetime Value of Customer

 

Knowing how much a customer is worth to you over the long-term is the best way to convince yourself and your staff to become more committed and determined to treating your customers right and keeping them happy.

 

Calculating the lifetime value of a customer is reasonably simple.

 

Take the example of your local grocery store. A typical family of four will spend approximately $175 each week on groceries. Given that they are on vacation for two weeks a year, and say they are away for other reasons for another 2 weeks, that means they will shop at their grocery store for 48 weeks each year.

 

Over the course of a year, this single family will spend approximately:

 

Annual Spend = (48 x175) = $8,400

 

at that grocery store.

 

Now, let's assume that the average family stays in their community for 15 years. Without taking into account inflation or the time value of money, that one family is worth

 

Lifetime Value = $126,000 ($8,400 per year times 15 years)

 

to that grocery store.

 

Now imagine the quality of service -- be it speed, friendliness or special treatment - that family would get the next time they bought groceries if the cashier knew they were worth $126,000 to the store (not just the $175 they were spending that day). It would probably be much better, wouldn't it?

 

Suddenly, when you and your staff realize the lifetime value of customers to your business over the long-term, making decisions to benefit them (and not just your short-term interests or profits) become much easier. Take the time to figure out the lifetime value of YOUR customers. You might be surprised.

 

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