What's Your Customer Worth?

Do you ask, "How much is a customer worth to me?" "How much should I spend to acquire them?"

You may rely on your gut feeling as to what is too much, just right or too little. Can you count on your gut feeling even if it's come through for you before? What if you spend more than what your customer is worth to you or too little and leave business opportunities on the table for your competitors to take?

The only way to answer that question is by determining how much an average customer is worth to you.

Think about it this way: would it make a difference in how much you spend to acquire a new customer to grow your business knowing that your average customer is worth $1,000, $50,000 or $1,000,000?

"How Much is a New Customer Worth to You?" my article in Oilfield Insider (give it a moment to load) uncovers the reasons why it's worth doing the math to figure out how much a customer is worth. In the article, I also share examples that put the math to work.

In sum, consider these things:

• How long customers stay with you.
• Review your average gross margin.
• How much does the average customer buy from you?

Imagine knowing roughly how much a customer is worth to you. Now, you can decide whether a deal is worth pursuing. You can apply the math to a marketing activity and hiring a sales person.

Let's say an average customer is worth $5,000. You meet with a marketing expert who can put together a plan that will lead to one new customer per month. The marketing expert charges $10,000 to do this. Yikes! That sounds high. Take a moment and think about it. If the plan indeed leads to 12 new customers in one year and an average customer is worth $5,000, then this means $60,000 (12 x $5,000) worth of new business for you in one year.

Subtract the $10,000 and that's a $50,000 profit. Even if you think the ambitious plan only brings in six new customers, your profit is $20,000.

Six new customers at $5,000 each = $30,000

It costs $10,000 for the marketing plan, so you make $20,000.

What if you don't have $10,000 to make this happen? Since this helps you grow your business, it'd be worth looking into a loan, line of credit or accounts receivables invoicing for the needed cash flow. Remember, new customers can also lead to more business as they can tell others about your business.

How do you determine what your customer is worth?