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Key Concept 2
Understand the Lifetime Value
of a Customer
The “lifetime value” of your customer is the total dollar amount
they will spend with you before they take their business somewhere
else, move away, or die. Customers are not “one-shot wonders.”
They are the lifeblood of your business. A good customer will use
your services many times over the course of many years and will refer
their friends, family, and business associates to you.
Shortsighted businesspeople like to make the fastest possible
dollar in-and-out. Smart businesspeople do everything they can
to nurture relationships and increase the lifetime value of their
customers.
You may not have the sort of detailed records you need to determine
the actual average lifetime value of your customers. Most
businesspeople don’t. But that shouldn’t stop you from building
long-term, even lifelong relationships with your new customers and
perhaps starting to keep track of that information.
Eventually you’ll be able to figure out a dollar amount value
that an average customer spends on your services over a period of
years. Remember: It’s the average that’s important. Some customers
may be worth only $50 to your business over their lifetime, but
some may be worth $5,000. It’s the average that’s important.
Once you know how much each new customer is worth to you,
you can decide how much you are willing to spend to get a new
customer.
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