4 {{ upvoteCount | shortNum }}
4 {{ upvoteCount | shortNum }}

How to calculate Customer lifetime value

by Himanshu1988
4 replies
I know there are many resources on google but most of the resources point to one thing & that is formula for calculating. However for any industry where your new & don't have inside knowledge how do you do that?

I know this question does not directly relates to internet marketing but I thought this is a good place to ask.
#calculate #customer #lifetime
  • Profile picture of the author positivenegative
    Originally Posted by Himanshu1988 View Post

    How to calculate Customer lifetime value
    You don't.

    Carry on providing/supplying value and they stay.

    If you don't they won't.

    It's impossible to calculate "lifetime value" as there are so many imponderables such as they may change direction, your offer/product becomes stale and they lose interest, they could die, move country or change jobs, or lose their job or business and no longer have disposable capital to buy from you, etc, etc, etc.

    My advice is to simply concentrate on what's in front of you and provide the best service you can, now.
    {{ DiscussionBoard.errors[10453391].message }}
    • Profile picture of the author DABK
      Yes, you do. You track what they spend with you, and you come up with average expectations... Yes, some die, your offers get stale, etc... But all of that is not relevant.

      What is relevant is what they buy, how much it costs, how often. That is all info you can track.

      The only time you can't do it is when you're a brand new business.


      Originally Posted by positivenegative View Post

      You don't.

      Carry on providing/supplying value.and they stay.

      If you don't they won't.

      It's impossible to calculate "lifetime value" as there are so many imponderables such as they may change direction, your offer/product becomes stale and they lose interest, they could die, move country or change jobs, or lose their job or business and no longer have disposable capital to buy from you, etc, etc, etc.

      My advice is to simply concentrate on what's in front of you and provide the best service you can, now.
      {{ DiscussionBoard.errors[10453584].message }}
  • Profile picture of the author JohnMcCabe
    Calculating lifetime value varies with the business model.

    Consider a real-world example - someone selling a kitchen gadget from a booth at a fair or boardwalk. Probably 95% of his sales are one off sales. He takes his cash, hands over the doodad, and they go their separate ways. The lifetime value of that customer is the profit on that sale.

    Next, consider a two step sales funnel. The initial sale is $10, the second $100 (keeps the arithmetic simple). 20% of the $10 buyers go on to buy the second item. So out of every 100 buyers, you have 80 worth $10 and 20 worth $110. Total revenue, $3000. Divide by 100 customers, and the average lifetime value is $30.

    Finally, consider a membership site. The monthly cost is $50 and the average member stays 3 months. Average revenue per customer is $150. Some will bail quickly, others will stay far longer, but on the average each customer is worth $150.

    These numbers are best calculated from your own numbers, obviously. But when you are just starting out, you don't have your own numbers yet. Your best bet is to see if there are any published industry studies, or see if other businesses in the same niche and using the same model will share rough numbers you can use until you have your own results.
    {{ DiscussionBoard.errors[10453461].message }}
    • Profile picture of the author Himanshu1988
      This helped me a lot & I am much clear about this now. Thanks

      Originally Posted by JohnMcCabe View Post

      Calculating lifetime value varies with the business model.

      Consider a real-world example - someone selling a kitchen gadget from a booth at a fair or boardwalk. Probably 95% of his sales are one off sales. He takes his cash, hands over the doodad, and they go their separate ways. The lifetime value of that customer is the profit on that sale.

      Next, consider a two step sales funnel. The initial sale is $10, the second $100 (keeps the arithmetic simple). 20% of the $10 buyers go on to buy the second item. So out of every 100 buyers, you have 80 worth $10 and 20 worth $110. Total revenue, $3000. Divide by 100 customers, and the average lifetime value is $30.

      Finally, consider a membership site. The monthly cost is $50 and the average member stays 3 months. Average revenue per customer is $150. Some will bail quickly, others will stay far longer, but on the average each customer is worth $150.

      These numbers are best calculated from your own numbers, obviously. But when you are just starting out, you don't have your own numbers yet. Your best bet is to see if there are any published industry studies, or see if other businesses in the same niche and using the same model will share rough numbers you can use until you have your own results.
      Signature

      Web Design | SEO | WordPress | Mobile App @ ZOTO Solutions

      {{ DiscussionBoard.errors[10453560].message }}

Trending Topics