Tweet

Calculate the True Value of Your Customers

Written by: Kevin Lawrence

Article Overview: The value of a customer cannot be overrated, and you shall soon understand why. The following story proves that the true value of a customer can barely ever be measured; it is always potentially huge.

Calculate the True Value of Your Customers

The value of a customer cannot be overrated, and you shall soon understand why. The following story proves that the true value of a customer can barely ever be measured; it is always potentially huge.

A woman bought some milk at a large grocery store. When she got home she realized that it was sour and had passed its "best before" date. She went to customer service later that day to return it, and one of the representatives gave her a hard time, saying: "How do I know this is the milk you bought today! You could have switched it!" He then made her wait twenty minutes while he consulted with co-workers about what to do. Naturally, the woman was furious, and she has refused to shop at that grocery ever since.

How much money do you think the store will lose because of the defection of this one customer? Well, she spent fifty dollars per week at that grocery store. No big deal, right? Wrong. Over the course of a year - 52 weeks - that store will lose $2,600 in business, which is substantial, but it gets worse. Over ten years the store stands to lose well in excess of $26,000 in direct sales from this single dissatisfied customer.

It doesn't end there, either. If the woman is really mad (as she was in this case) she'll tell, on average, 11 other people about what happened. Once those 11 people each tell approximately five other people on average about the incident, 67 people will have heard something negative about the grocery store. That's really bad for business. Even if only 10 of those sixty-seven people don't do business with that store again (and they had the same spending level of $50 per week), over 10 years that one incident will have cost the store a quarter of a million dollars. $250,000.00 over a $.99 carton of milk and one employee's bad attitude. It makes you stop and think - doesn't it?!

Try this exercise for yourself:

To estimate the value of one of your customers, multiply their average annual expenditure by how long you would hope they'd remain your client. After that, attempt to account for the dollar value of referrals this client would provide you with over the same time period and beyond. Soon you'll be swimming in astronomical figures, and it should be clear to you that the value of a customer is always infinite and inestimable. This exercise does prove the following point though: Take every customer seriously!

1. Average annual expenditure per client $_______________

2. Average number of years a client stays x _______

3. Individual client value $_______________ (line 1 x Line 2)

4. Potential number of referrals over client's lifetime _______________

5. Total referral value $_______________ (line 3 x Line 4)

6. Actual Lifetime Value of One Client $_____________ (line 3 + Line 5)

Obviously, you can see for yourself that it pays to take every single one of your customers seriously; each of them is a potentially infinite resource. The one person you don't treat with a proper amount of respect could cost your business a lot more than you imagined. An unhappy client is like a rock hitting water: the stone hits, and a wave of unrest spreads. Invest time NOW to ensure that your clients feel well cared for and valued. They're worth it, and so is your bottom line.

Related Articles
  Why customer lifetime value is the most important measurement in your business
  Calculating Customer Lifetime Value
  CRM: Who are your most profitable customers?
  Search Engine Optimization: How Much a First Position on Google is Worth?
  Calculating ROI for SEO

Article Tags:



Related Forum Posts
Diamonds vs. squares - True True - I put on 10 pounds after eating sliced cheese that was endorsed by a wrestler when I was a kid... A diamond shreddie is a lot cheaper than LeBron James - LOL!
Re: Two Useful Books To Help You Focus On The CLIENT - Hi David, To add to your thread, I'd like to recommend Jonathan Tisch's "Chocolates On The Pillow Aren't Enough: Reinventing The Customer Experience". Tisch's book includes content on "Welcoming Customers", "The New Art of Customization", "The Challenges of Customer Diversity" and "Offering Something Extra to Your Customers" to name a few.
Re: Web Idea - Hi Som, Welcome aboard. Almost everything that I can add is already mentioned by the ever-active, respected members of the Forum. But I would like to bring it to your attention that whenever we have our idea and nurture it for long, it becomes something like our baby and we are all possessive about that. True. Now the question is that as we are mostly possessive of our idea how far can we go about it? I mean, you say your idea is fresh as morning coffee. True to you but have you researched and actually tried to find out the feasibility part of it? I have also been a programmer and as such I feel that many of the ideas that we have generally look seemingly better in book but when it comes to reality, there is a difference. So I would recommend you to re-consider the idea. Not as Som but as someone who is a client of the idea. Please step into the shoes and find out whether you would go for the product as a client! If yes, then lets start with doing a market research and the follow up with the other formalities. Reason being that its getting late and the Coffee may lose its freshness! Good Luck,
How to Do Great Marketing with (Amost) No Money - I've given this presentation to CEOs many times. Now i can share it with you. But I cannot because I do not yet have 20 posts. Jeff Ogden, President Find New Customers
Re: Email Marketing Benefits - Yes GT, True. It's a quite bit to challenge to provide interested content in emails. Robert


Share this article with your friends. Fund someone's dream.

Leave a comment below or share on the left and you'll help support entrepreneurs in Africa through our partnership with Kiva. Over $50,000 raised and counting - Please keep sharing! Learn more.

Tweet

Newsletter

Get advice & tips from famous business
owners, new articles by entrepreneur
experts, my latest website updates, &
special sneak peaks at what's to come!

Name:
Email:

Popular Articles

A New Year in the Pharmaceutical Industry

Web Design in 30 Minutes - Can this be Right?

Suggestions

Email us your ideas on how to make our
website more valuable! Thank you Sharon
from Toronto Salsa Lessons / Classes for
your suggestions to make the newsletter
look like the website and profile younger
entrepreneurs like Jennifer Lopez.