We know the customer is the most important element of a business. The most expensive act any business can take is to lose a customer. That cost is stunning when considering the LVC.
So here is why losing a customer is so expensive: The Life Time Value of a Customer [LVC]
How do you calculate this? Simple. LVC = The sum total of money a customer will spend with you. Example: Suppose you owned a clothing shop with a demographic of young women between the ages of 18-24. Now suppose the average customer spend each month was $200.
Over six years that customer will be about $14,400.00 with you!
Armed with that knowledge the following comes into sharp relief:
1. Customer service: poor customer service drives away customers. If, after six months of spending at your shop the customer is outraged and decides never to come back, you just lost $13,200 in revenue. A very expensive mistake.
2. When customers walk they talk. When customers like a product or a store they talk about it. When they don't like a product or store, they are likely to slam your product or store at a rate of about 6x. That means you are continuing to lose business. More of those $14,400 nuggets that fail to even show up.
3. Strategy in focus. Plenty of strategy consultants talk about qualitative research, but few if any talk about LVC. Knowing LVC will refocus, refine, and realign your strategic objectives.
4. Cost per sale. With a clear knowledge of LVC you will be able more accurately determine what your annual ad buy should be. In addition, you will have an absolute standard against which to measure your cost per lead and ad cost per sale.
