A Guide on Customer Lifetime Value and on How to Calculate It
Customer is one of the constant factors to consider when making business decisions because they are very central to the success of your business. It is very ideal for your business to consider how you can appeal to many customers as also will try to strategize on how to retain customers. Marketing is very important and it is one of the things you need to do to ensure that you are actually reaching out to a customers. Your marketing budget matters therefore, as a business that deals a lot with customers. Depending on what your company will and in one year, your budget set for marketing should be 5 to 10% of that revenue.
You might hang up with mind blowing results especially if you are able to do it very well. One of the things you need to understand, however, even as you focus on doing this, is what will be the lifetime value of a customer. You need to look at the profit margin you can realistically make from one customer throughout the relationship that you will have with them. This is what is known as the lifetime of the customer, you need to know it when it comes to budgeting and also engaging your customer. It will help you to avoid making silly mistakes as a business, even as you choose to retain customers. You can ask important questions like the cost of marketing materials you are using to reach out to the customer. You also need to ask about the cost of the sales and onboarding process.
This is where you might want to consider using financial projections as you also use the right tools to learn on how to retain customers. Additionally, you can also use the right lifetime value equation that is very helpful in determine in the real value. You will calculate the lifetime value of the customer by taking the average of each sales, multiplied by the number of transaction as well as the retention time of the customer and then multiplied by the profit margin. Another thing you might want to do after that is the command the customers database. It is the best way to predict customers behavior because you are able to analyze the data and help you to retain customers. It is good to have such an elaborate system for that. The good thing is that there are very many tools that can help you out today when it comes to having the right information segmented.