In terms of dollars, there’s a pretty simple formula to find out the lifetime value of a customer. Check it out…

Average transaction amount multiplied by the number of transactions per year multiplied by the number of years a customer stays loyal to your business.

This formula will spit out a dollar value which will help show you where to improve your business to make it more profitable. Adjusting any of the elements in the formula can have an exponential impact on your profits. It will also help you come to understand just how important it is to keep your customers happy. It puts a dollar value on your customer service (sort of), and also shows you how your relationship with your customers is a vital component to success. Remember, marketing is all about relationships.

As a marketer though, I have to say that this formula only tells one part of the story. The money part. As you know numbers are only one aspect of marketing. This is why many refer to marketing as an art. There are alot of variables in this game, and mastering these variables is what will make you successful. There are many things this formula doesn’t take in to account. How many people is this customer going to tell about your company? What are they going to say (You can be a customer and still have a negative opinion of the business; look at all the folks dissatisfied with Call of Duty: Modern Warfare 2, but continue to give Activision more money)? What about changes in the economy, like the one we’ve been facing for the past few years? How will that affect your business? What is it that makes your customers come back? I could go on, but you get the point.

Customers are the fuel that moves business. Without them, you’re history. In my view, you can’t begin to put a dollar amount on the relationships that you build with your business. I think the lifetime value of a customer is priceless.

What do you think? Comment below or email me at edwardviator@evil-marketer.com