Life time value, the customer’s value over time

A very important aspect in marketing and sales, because knowing this value allows you to make choices in customer management and in the marketing of companies.

It is a very important fact that every company should know, to know the profit generated by a customer over time by keeping track of each transaction from the moment it is acquired.

For some sectors where the purchase of products or services is unique, it is obviously much easier to manage this data, since the time variable does not exist.

Generally, however, customers generate more orders over time and the turnover that is obtained minus the costs incurred for the sale and support allow me to calculate a gross margin on which the life time value is calculated.

Assuming that a company sells a service or product to a customer at a price of 20,000 euros per year for 5 years, a turnover of 100,000 euros is obtained for that customer, by subtracting a contribution margin of 35%, a margin of 30,000 euros is obtained, at this point I can, for example, invest 5,000 euros to acquire a new customer.

Sometimes the choice to sell a product at a loss in the initial phase can be decisive for acquiring the customer with a view to life time value which at the beginning has an indeterminate but predictable value based on the projections of other sales on other customers of the same. sector.

The question is therefore this: how much must the company invest to acquire a new customer?

Knowing the customer’s behavior over the years, aggregating past customer data with others in the same sector or area, knowing their production and management costs of the product or service are for example fundamental elements to monitor for the development of a healthy business growth.

Does your company know the life time value of its customers?