While offering good service does not depend on the financial return involved, it’s still helpful to consider the true financial worth of every customer we currently serve. Like I often emphasize, businesses fail to offer good service because they are thinking short term. How much is this person paying or buying right now? What value are we deriving from her in the present? However, when we shift our focus from what the person is purchasing right now to her value over a lifetime of transactions, it helps us form a better estimate of today’s encounter.
Supposing our customer, let’s call her Mrs. Garba, is an online buyer of domestic appliances. She buys N3,500 worth of kitchen utensils monthly, and she would go on to remain a customer for seven years. How can we determine her customer lifetime value or CLV?
A simple approach is to apply the formula below:
Mrs Garba’s CLV, therefore, would be N3,500 X 12 X 7 = N294,000.
This simple arithmetic helps us realize that Mrs Garba’s value to our business goes beyond the mere N3,500 she is spending right now. She is worth a whole lot more!