What is a Customer Worth?

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Do you know what a customer is worth to your business?

Many marketers actively measure how much they spend and how many customers they generate. With those two pieces of information, it’s easy to measure the marketing cost per customer.

But can we really afford to stop there?

What if your cost per customer is $100. Is that good or bad?

Well, if each customer were worth $1000 to your business, the answer would be different than if they were worth $50.

Knowing what a customer is worth, often referred to as Customer Lifetime Value (CLV), will guide your marketing spend. Obviously a lower acquisition cost is always better, but knowing the CLV lets you know exactly what you can afford to spend and still be profitable.

For some companies, this will be easier than others. Some companies only sell to customers once, and their product or service always costs the same. But most companies sell different products to different customers, at a variety of price points over time.

This information should be available, if you know where to look. Consult your IT team and create a report that shows the total money spent by all customers. Then you can sort and create an average for different products or categories. This average lifetime value for your customers will help you set a target cost per acquisition that you can use to optimize your marketing spend going forward.

Incentivize Everything! New Customers

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This is part 2 of my Incentivize Everything series. Be sure to check out Part 1, entitled How to Create Product Evangelists.

As a company, we know that there are certain things that you’ll want to see happen.  Some are going to be more important than others.  But the point of this post, and others in this series, is that incentives can be put in place to help ensure those things happen the way you want.

Gaining new customers is an important part of any growing business. For someone to become a new customer, there are certain obstacles that they must overcome on some scale or another.   Among those obstacles is the cost.

Whether a new customer is a first time buyer in this category, or is choosing to switch from one company to another, there is a cost involved.  Lowering this cost is a very easy way to lower/remove an obstacle, and make the decision for a potential customer to become an actual customer easier.

There are a number of ways to do this:

  1. Introductory Pricing - Amazon.com created a buzz a few years ago when it was revealed that they were showing lower prices to new customers than returning customers.  In reality, this is a smart practice when acquiring new customers is a high priority.  If your product or service is a good one, and customer loyalty is not a problem for you, lowering the price for new customers adds to your base and should create a new batch of loyal followers.
  2. Free Trials – Icontact.com is just one of many companies that offer free trials of their products.  A free trial is a great way to convince consumers to come on board.  If there is no cost, all the customer has to spend is time to sign up or make a purchase.  And if you deliver on the promises you make, you should get a percentage of all free trials to convert into paying customers.  This practice works best with recurring payment models or subscription plans.
  3. Freemium – This is a model made popular by many internet companies, like Flickr.  Offer a free version of a product or service that does not have all of the bells and whistles of a paid version.  The free version still needs to work, so you have to be careful with how much you limit it.  It should be enough to create demand, but not more than it has to be, so that a percentage of people do convert into paying customers.
  4. Add-ons or Bundles – Incentivize a purchase by adding something to the equation that your competitors don’t.  Buy one get one free deals increase the likelihood that someone who would not otherwise purchase your product does so.  Throw in something of value for free and you are creating more value for the customer, increasing the likelihood of purchase.

There are many ways to incentivize a purchase, and playing with pricing like this is just one.  But when looking specifically for new customers, price can be one of the most important factors, as it is often the one obstacle that stands out in the consumer’s mind.