The greatest asset to your business is your Customer,specifically, your Customer Lifetime Value.

In my many years in Sales and Marketing, I've met many CEOs andbusiness owners who don't have much clue as to what CustomerLifetime Value is, much less its importance and the impact ithas on their bottomline. To most of them, what matters most isto increase revenue by continuously acquiring new one-shotcustomers.

This is one of the fatal mistakes that many business owners make;it's a sad scenario, but it's also the reality. Let me tell yousomething: it'll cost you 5 times more to attract a new customerthan it is to bring one of your past customers back to you.

I don't know you personally, but if you're a smart business owner,you'll understand that every cent you invest in advertising isgoing towards acquiring new customers. You'll also realise thatonce you've acquired the customers, you just can't afford to letthem go.

----------------------------------
So what's Customer Lifetime Value?
----------------------------------

Customer Lifetime Value is defined as the total value, inmonetary terms, of your average customers spanning the entireperiod that these customers are likely to do business with you.It's the potential contribution of your customers to yourbusiness over a period of time.

Here's how to calculate your Customer Lifetime Value:

1). Let's say you've 2,000 steady customers and these customersremain with you for an average of two years; for the past twoyears, your net profit was $700,000.

The Customer Lifetime Value can be calculated as:$700,000/2,000 = $350.

What this means is that over an average customer lifespan oftwo years, each new customer you could acquire and keep is worth$350 to you in profits.

2). If you do not have the actual figures, you'll have toestimate. As the Customer Lifetime Value will have a significantimpact on your bottomline, my advice is that you be prudent andconservative in your estimation.

----------------------------
Why is it so important to you and your business?
----------------------------

Lifetime Customer Value is important to you and your businessfor the following reasons:

1). Knowing the Lifetime Value of your customers is crucial toyou and your business as it serves as a benchmark without whichyou'll be groping in the dark.

When you know the Lifetime Value of your customers, you candetermine how much time, effort and money you can afford toinvest to acquire that customer in the first instance.

In other words, you can invest more today to reap a much largerprofits later down the road as long as your cashflow is healthyand can support it.

Every marketing campaign that you undertake costs you money aswell as reaping you benefits such as increased sales, enhancedcorporate image, etc. But how can you be sure that the benefitswould outweigh the costs or investments? This is where knowingthe Customer Lifetime Value is so powerful - it helps you todetermine this even before you launch your marketing campaign.

2). When you realize that customers are actually an ongoingstream of revenue as opposed to a one-shot sale, you can re-focusyour marketing efforts.

Instead of contantly struggling to acquire more and more newcustomers, you can now begin to focus on keeping your existingcustomers longer and selling to them repeatedly, in other words,repeat sales.

You may spend more like making stronger and more attractiveoffers than your competition in acquiring new customers now whowill be your money spinners tomorrow.

This makes sense because you now know that on average you'll morethan make it back over the years that the customers are with youand therefore you could afford to break even or even lose moneynow in acquiring the new customers.

Start shifting your focus to Customer Lifetime Value and maximise your profits today!

Start to have a proper understanding of Customer Lifetime Valuebecause it's key to the success of your business. It'll allowyou to acquire more customers than your competition throughbetter and more attractive offers; it'll dramatically increaseyour bottomline through more repeat sales and shoot your profits through the roof.

About the Author

Copyright 2004 by Larry Lim, MarketingSphere.com

Larry Lim is a practising marketing strategist and tactician who dishes out highly effective marketing strategies and tactics that will enable you to successfully start and grow your business on the Internet.

Check out his Internet Marketing Strategy website that is jam-packed with internet marketing secrets and softwares that will skyrocket your sales, and shoot your profits through the roof.