Entrepreneurship

Lifetime Value of a Customer

The biggest obstacle to a potential customer is usually the upfront cost.
Potential customers don’t know if the cost justifies the end result.
Because buying something new is risky. And buying from someone new is even riskier.

So why not ease your customers in.

Nestle doesn’t profit from selling you the coffee machine. They drop the price because they know they make money off the coffee pods.
Sony doesn’t profit from the PlayStation but from the games people buy.
Gillette doesn’t profit from the razor handles but from the blades.

In order to know how much you can lose in order to gain you must first know the lifetime value of a customer.

LTV = Average profit per customer x total frequency of purchases over the life cycle of your brand.

That may be harder for some to figure out.

But Once you know that number you will know how much you can spend on a customer before you break even.

You can then choose to remove the obstacle by lowering the upfront cost – allowing more customers to gain trust. Or you can know how much to spend on advertising in order to gain a new customer.

Either way knowing the life time value of a customer is one of those key metrics you should know.


Also published on Medium.



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