Customer lifetime value

What it means

Customer lifetime value is what one customer is worth to you across the whole relationship, not just the first sale. If a customer pays you Rs 2,000 today but returns eight times over three years, the first sale was only a small part of their real value.

This number matters because it tells you how much you can sensibly spend to win a customer. If you only count the first sale, you will think you cannot afford to advertise. If you know the full value, you can spend with confidence.

Why it matters

Many owners cut marketing or discounts because the first sale looks thin. Others overspend because they assume every customer will stay. Knowing the real value of a customer removes the guesswork. It also shows where your money is best spent: on keeping people, not only on finding new ones.

When you get this right:

• You know the most you can spend to win a customer and still profit.
• Repeat customers get the attention they deserve.
• You see which customer groups are worth more than others.

How to use it

1. Pick one customer group, such as walk-in patients or first-time buyers.
2. Find the average amount they spend per visit or order from your records.
3. Count how often they come back in a year, and how many years they typically stay.
4. Multiply spend, visits and years. Then subtract your cost to serve them, to get a profit figure.
5. Compare this with what you spend to win one new customer today.
6. Choose one action that raises the value,

Common mistakes

• Counting revenue instead of profit when working out the value.
• Using one average for all customers when some groups are far more valuable.
• Ignoring customers who have gone quiet instead of following up.
• Spending on new customers while old ones leave unnoticed.

Try this today