

Not many small business pay attention to a financial concept called customer lifetime value (CLV).
Getting this right can light up your business bank account. It will help you know:
Basically, CLV defines – in dollars – today’s value of the future profits your business can expect from a customer over the entire time they remain your customer. That time could be a day — or a decade. It’s important stuff – especially for businesses that have been lured into the daily deals game and may be sacrificing long-term relationships for a few quick bucks.
Calculating CLV does take effort. But it needn’t be hard. (Below, I’ll tell you about some free CLV calculator tools you can use.)
One thing you’ll quickly discover is that common sense is correct: The longer you keep a customer, the more profit they produce. That’s true most of the time.
But not all customers are the same. They cost different amounts to acquire, produce different amounts of revenue and stay with you different lengths of time. They also require different amounts of care and feeding.
If you don’t account for these differences, you can end up paying to acquire and keep unprofitable customers.
Think of it this way: Does it make sense to spend, say, $40 to attract a new one-time customer (with a coupon offer, for example) while spending nothing to keep a customer you already have?
Many business owners are familiar with a variation of this known as the 80/20 rule – that 80% of profits come from 20% of the customers. Yet, conventional wisdom tells businesses to treat all customers alike. That’s a problem because all customers are not created equal. Being CLV savvy helps you focus your marketing and spending on customers who bring real value to your business.
Several CLV calculator tools are available free online. This one, from Windsor Circle, is a free download.
Harvard Business School Publishing also offers a free online CLV calculator here. Or simply do a Google search for “CLV calculator” to find others.
Copyright © 2000-2017 BizBest® Media Corp. All Rights Reserved.
Copyright © 2023 SCORE Association, SCORE.org
Funded, in part, through a Cooperative Agreement with the U.S. Small Business Administration. All opinions, and/or recommendations expressed herein are those of the author(s) and do not necessarily reflect the views of the SBA.