Customer Value - How to Calculate it

Submitted 10/7/2013 by Kaloyan Georgiev

In every business owner's life comes a time when he needs to grow his/her business. And when this time comes, they need to understand one simple thing - the customer value. Ok, so maybe it isn't a simple thing, but once you are done with the article, you will see it actually is pretty simple. And you will see it is something useful in many ways, whether it is for cutting costs or identifying new customers. So, here we go:

1. Calculate contribution - try and calculate the profit contribution of each customer in the current year. Determine the revenue per customer minus the costs needed for servicing the customer. If you have hundreds and thousands small customers - try to split them into different segments depending on the product line they use or any other common pattern

2. Calculate retention - determine a relative estimate of how long you might retain each customer. You can determine how loyal each of you customer by checking how much he/she buys, how often etc.

3. Calculate retention costs - you need to find out how much it costs you to retain a customer and to get a new one. Some customers need big discounts but once they're on board - they need little or no cost to retain.

4. Calculate value - combining the before mentioned data create a model showing where you need to continue the cash flow and where you need to disrupt it. You will have a picture of where your most valuable clients are and where you need to change things so you can add more value.

There is a big chance you will be surprised how many of your customers are actually unprofitable and how many cost you almost nothing but add greater value to your business. By seeing the whole picture you can easily see where you need to invest more and will make you question some of your previous investments. 

We can help you in a lot of ways with even more useful articles:

1. 4 Words With Great Impact on Sales

2. Deliver the Best Customer Experience in 3 Steps

3. How to Make Customers Buy From You