The Value of a New Customer

Why would Amazon spend hundreds of dollars to acquire a new customer? What calculations would a company make before purchasing a Super Bowl ad? Amazon knows the “lifetime value of a new customer” and has determined the acquisition costs are justified. Before making any TV ad purchase a marketer would have to know how to value expected new customers.

Many local businesses shy away from wise marketing moves because they’ve not understood marketing done well has a profitable return on investment. The value of a new customer, patient, or client is not the profit from their first transaction with you. Directly, their value includes all the business they can be expected to do with you in their lifetime. Indirectly, their value includes their referrals of others to your business and those profits.

If the lifetime value of a customer is calculated correctly, almost every small business would be more aggressive with good solid marketing (such as those services provided by us 🙂

Harvard Business School actually provides a free online tool to make this calculation. It can be found here: http://hbsp.harvard.edu/multimedia/flashtools/cltv/

Check it out and see what you discover about your customers. I bet you realize you need to do better at acquiring new customers – they are worth a lot! Remember that all business share these two important goals: retaining current customers and acquiring new ones. If you are not doing the latter the troubles ahead are obvious. Marketing so often gets ignored by the local business person. But it cannot – must not – be that way!