January 8th, 2008 Vitaly Grinblat
One of the most profitable things you can do for your business, is to understand exploiting the actual value of your customer. It’s been called the Marginal Net Worth and the Lifetime Value.
What is the current worth of one of your customers or prospects? It’s the total profit of an average customer over the lifetime that they do business with you. That includes all subsequent sales minus advertising/marketing and your fulfillment expenses.
Let’s say the average customer brings you $75 per sale. They re-purchase 3 more times in a year. Their average order amount is $300. On each $300 reorder, you make $150 gross profit. The average life lasts 2 years. Every new customer is worth $975.
You reach the $975 by adding the $75 initial profit to the 3 other purchases each year of $300. Only $150 is profit, so $150 times 3 equals $450. If they do that for 2 straight years, that’s $900 plus the original $75.
If this is our average customer and they’re worth $975 in profit and it only costs you $30 through your advertising/marketing expenses to get them, every time you spend $30 you receive $975 back.
You would be foolish not to Read the rest of this entry »
