What is a loyal customer worth to you? Use this calculator to discover the real value of customer loyalty and how it impacts your bottom line!
Customer loyalty means a great deal to every business. Loyalty is what keeps them coming back, for weeks, months, and years. But there is also a much larger benefit, and that is the value of referrals. Loyal customers tend to refer their friends to you, and when those customers return, that has a significant impact on your business success.
Lifetime customer value is different for every business, but there’s no doubt that customer loyalty is one of the most important factors to your success. How important? Just see for yourself, using our Customer Lifetime Value Calculator on this page. Enter 5 numbers, and click the “Calculate Lifetime Value” button. You will instantly see what a customer is worth to your business. Adjust the numbers to simulate the benefit of a customer loyalty program, a social media campaign, or the impact of a mobile website. You will instantly see whether it is worth investing in any marketing opportunity.
You may not know all of the metrics needed for this calculator, so be safe, be conservative.
Here is an explanation of how the customer value calculator works.
A. Dollar Amount of Average Sale. You probably know your average sale. Take the sum of your sales for the week, month, or year and divide it by the number of transactions. A sandwich shop might be $12, a fine restaurant can be closer to $75 and a boutique could be $200.
B. The Average Number of Sales per Year, per Customer. To arrive at your number of sales per year, divide your total number of sales by your total number of unique customers. This tells you the average number of sales per customer. Depending on your business, the frequency that you see your customers can vary wildly. An auto dealership might see a customer only once every few years. A coffee shop might see many of their customers every day. Not everyone has this number, so you may have to make an educated guess.
C. Number of Years a Customer. This is your customer retention metric. In other words, once you win a customer, how long do they remain a customer? For instance, The industry average for customer retention by fitness clubs is around 18 months. This is because while some customers will stay at the same club for years, others will join for 3 months and quit because they don’t make the necessary lifestyle adjustments. Veterinarians often retain many clients for the lifetime of their pets, or until a family relocates.
D. Additional Customer Referrals per Year. When your customers are delighted with your business, they’ll talk about you to their friends, family, and business associates. You can measure and influence this metric through loyalty programs and viral online marketing. If you have never tracked how customers have heard about you, you might have to guess at this number for now. Or, you can leave it at zero, and then change it to see how a customer referral program can help your business.
E. Percentage of Referrals Who Become Customers. Not every referral turns into a customer, but some do. This percentage is never zero, but it might be 10%, 20% or more, and can be influenced by social media marketing campaigns. If you don’t know this value, start with a conservative assumption and then look at how a viral social marketing campaign can increase your business.
Once you see what your customer value is, play with the numbers. What would be the benefit of retaining a customer longer? What would be the impact of increasing the referrals by your current customers? What is the value of a marketing program that increases the frequency of customer visits by 50%?
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