The Value of a Customer

The Driver of All Marketing Efforts

You need to determine what the value of a customer is to your company. Answer the following questions:

How much will the average customer spend with you per year?

A = _____________

If you provide quality service and products, how many years can you expect to keep a customer ?

B = _____________

What is your gross profit, as a percentage of revenues?

C = _____________

The value (V) of a customer is:

V = A X B X C

We learned with our network consulting company that the average life of a customer was about 2 ½ years and the average yearly expenditure was around $10,000. With a gross margin of 35%, each client was worth $8750 to the company.

$10,000 X 2.5 * .35 = $8750

If you haven't used this simple formula before, it can totally change how you view customer acquisition, retention and customer service. Normally you'll want to spend about 10% of current or projected revenues on customer acquisition. This formula allows you to accurately project what a customer is worth to you over their customer life cycle.

A valuable concept to learn and leverage is to go to great lengths to keep a good customer. The simplest and least intensive marketing efforts are those that you do for existing customers. Stay in contact, educate them on the excellent services you have provided them and the value proposition that you offer.

Close Ratios

The next important parameter is to calculate your close ratio. This means for every prospect you talk to, how many become customers? We had a close ratio of around 25%. With the above example, assuming a marketing budget of 10% of gross revenues per customer, we had $1500 to work with. With a 25% close ratio, that meant we could spend on average $375 for every prospect we talked to ($1500*.25=$375).

This is a very useful tool for making decisions around how much time to spend on proposals, contact, lunches and other prospecting activities.

Bryan Brandenburg has published 5 books as well as a number of articles both in print and on the internet. He has published almost 30 software programs both for consumers and business. More information can be found at www.vmmg.net

---

Marketing on the Cheap: Write? Right!!

We all know the value of writing articles for promoting... Read More

Marketing Planning Made Simple - Another Small Business Power Tool

Marketing planning must be really difficult and complex, otherwise why... Read More

Service Marketers; How?s Your Packaging?

When a shopper picks up a product in a store,... Read More

Send Postcards To Save Money and Cut Through E-mail Clutter

Use your computer to send personalized color postcards in quantities... Read More

The Apprentice: 5 Lessons in Marketing

Donald Trump's hit reality show, The Apprentice is a godsend... Read More

10 Effective Ice Breaking Questions

Whether you go to a Chamber of Commerce event, a... Read More

How To Go From Under Dog to Top Dog by Unleashing The Power Of a Postcard

The Tale of Two Dentists...Dr. Namel and Dr. Ivory are... Read More

Give me a Referral any Day - the Power of Networking

I nearly panicked recently! Well, maybe a slight exaggeration but... Read More

Why Pay for Online Press Release Distribution?

We've all heard that "free advice is worth what you... Read More

Use a Guarantee In Your Headline To Increase Trust

Sometimes you can use a guarantee effectively in your headline.... Read More

Funnel Your Way to Marketing Success

A funnel is a good way to think of the... Read More

Top 7 Ways to Get Your Products in the Hands of Celebrities

Celebrities are the tastemakers that drive brand awareness and usage.... Read More

Wooing Women With Packaging

In just one month three California vineyards have introduced new... Read More

Target Your Share of the 50-Plus Market

It's quite apparent that Americans are living... Read More

Comprehensive Marketing Details Not Found in Beginner Books

If this is the first marketing article you are reading,... Read More

The Value of a Customer

The Driver of All Marketing EffortsYou need to determine what... Read More

Forget Conventional Marketing - Embrace the Web!

Tactical marketing processes are once again undergoing fundamental shifts from... Read More

7 Tips to Grab New Clients

As a business professional, you probably realize the value of... Read More

Marketing 101: The Power of Marketing

When you hear the word "marketing" what comes to mind?... Read More

Motivating Shoppers with Online Coupons (Part 2 of 2)

Last time we discussed how online coupons and promotion codes... Read More

What the Heck is a Campaign and Why Do I Need to Do One?

Many people ask me, "What is a postcard campaign, exactly?"... Read More

Universal Principals That Guide Business Growth

Universal principals are those "self-evident" truths that have guided brilliant... Read More

Grow Your Business By Getting Your Customers Buying From You More Often - 35 Ideas

35 Ideas to Spark Your Creativity:There are 3 ways to... Read More

Maslows Marketing Filter

One of the basics of all marketing and advertising training... Read More

How to Tie a Tie and How To Kiss - What Do They Have In Common?

How to Tie a Tie and How To Kiss -... Read More

Ready, Aim, Fire...Oops...Wheres The Target?

Everywhere you go on the Internet you find the words,... Read More

Turbo-Charge Your Viral Marketing- Five Easy Ways

The world of marketing has changed. With increasingly better educated... Read More

Making the Intangible Real

How do you make the intangible real? How do you... Read More

Two Methods of Marketing Using Joint Ventures

Whether you're a contractor a local merchant with 150 employees,... Read More

19 Ways To Attract Higher Paying Clients

Some people have little difficulty attracting and maintaining clients who... Read More

How Do I Define My Market?

Your market is who you want to reach. Your customer.... Read More

Loyalty Cards ? Tips To Consider Before Committing To One

Loyalty marketing has been around for as long as retailing... Read More

Can Message Board Marketing Work For You?

One of the things that makes the Internet fun is... Read More