How much is Your Customers Life Worth?

Posted by Chuck Bankoff On October - 14 - 2010

No I’m not talking about a contract hit or an intervention. I’m talking about looking at a more appropriate way to measure your online marketing ROI.

A typically mistake most marketers make is to overlook the amount of revenue a customer brings in over the lifetime relationship. This info is important to track because it indicates how valuable each new customer is, and what it is worth spending to attract them. It also lets you know just how good your customer retention program is and how much you should invest in that.

The simple way to measure the Average lifetime value of a customer is:  Total value of sales / Total number of customers.

Once you have an idea about how profitable each new customer is likely to be, you can make better decisions about allocating your online marketing budget. If the lifetime value of a new client is very high, then you can afford higher acquisition costs to obtain new customers.

One of our clients, Chris, from Oregon Mushrooms grasped this concept immediately. Years ago she told me that she didn’t care if she lost a little bit of money on each new customer because her product was unique, her service was great, and the average customer reordered every few months indefinitely.

In fact, we’ve been running her PPC and SEO programs for years, and over time her cost per acquisition has actually gone down as we fine-tuned her Pay-Per-Click program and our Search Engine Optimization efforts have matured.

I’m thinking the “intervention” should be reserved for the business that doesn’t measure the lifetime value of a new client. Oh-and Chris? She never did lose money on any of her Internet Marketing efforts.

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