| Home | Free Articles for Your Site | Submit an Article | Advertise | Link to Us | Search | Contact Us |
This site is an archive of old articles

    SEARCH ARTICLES


vertical line

Article Surfing Archive


The Value of a Customer - Articles Surfing

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 * 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.

Submitted by:

Bryan Brandenburg

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.
b.brandenburg@vmmg.net


        RELATED SITES



https://articlesurfing.org/business_and_finance/the_value_of_a_customer.html

Copyright © 1995 - 2024 Photius Coutsoukis (All Rights Reserved).

ARTICLE CATEGORIES

Aging
Arts and Crafts
Auto and Trucks
Automotive
Business
Business and Finance
Cancer Survival
Career
Classifieds
Computers and Internet
Computers and Technology
Cooking
Culture
Education
Education #2
Entertainment
Etiquette
Family
Finances
Food and Drink
Food and Drink B
Gadgets and Gizmos
Gardening
Health
Hobbies
Home Improvement
Home Management
Humor
Internet
Jobs
Kids and Teens
Learning Languages
Leadership
Legal
Legal B
Marketing
Marketing B
Medical Business
Medicines and Remedies
Music and Movies
Online Business
Opinions
Parenting
Parenting B
Pets
Pets and Animals
Poetry
Politics
Politics and Government
Real Estate
Recreation
Recreation and Sports
Science
Self Help
Self Improvement
Short Stories
Site Promotion
Society
Sports
Travel and Leisure
Travel Part B
Web Development
Wellness, Fitness and Diet
World Affairs
Writing
Writing B