What’s your Customer worth?

Service pixWhile 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:

CLV Formula

 

 

 

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!

Marketing is about Value

Marketing is the lifeblood of every business. It is the fuel which keeps the engine running. Without customers, the business would close shop.

We often think about this aspect of business as the activity of bringing in customers. While this is true, it goes beyond that. The core term which captures all that marketing is about is the word Value. And this refers to the benefit which the firm or company or business provides for those it serves. It is the heart of every business.

The popular paradigm for discussing marketing is the marketing mix (shown below), which shows the interaction among the 4 concepts of Product, Price, Promotion, and Placement.

mix

 

Central to all these concepts or activities is value. Determining the nature of product or service to be provided, how it is to be communicated to the target market, the price at which it is to be offered, as well as the means by which it is made available to consumers – all revolve around the core benefit which the business is providing.  Keeping this concept central helps us think clearly and make better customer-oriented decisions.