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It costs three to five times as much to obtain a new customer, than to simply retain an existing customer. When an organization consistently delivers superior value and wins their customers’ loyalty, revenue and market share goes up, and the cost of attracting and retaining customers goes down.  Those organizations that look for ways to keep customers for life, know that it pays to create customer value.

Here’s a methodical approach to calculating the lifetime value of a customer:

1. Customer’s average dollar value per purchase                                     $________
2. Average number of purchases per year                                              _______
3. Total annual revenue
$________

4. Average dollar value of cross-sell purchases
$________

5. Estimated number of referrals per year that result in new customers  ________
6. Average dollar value per purchase of each new customer                      $________
7. Average number of purchases per year of each new customer                ________
8. Total annual revenue of referred customers
$_______

9. Total annual revenue
$_______
10. Number of years customer is retained                                                      ________

11. Life time value of a customer                                                                       $_______

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