Measuring the Value of a Customer

I’m as big of an advocate for improving the customer experience as you will find. That said, one thing that bothers me is that too often companies don’t know the value of a customer to their business. When I ask, “What is the value of a customer to you?” Often the answer is, “A lot!” That’s akin to an exchange of, “How does this rocket engine work?” And the response comes back, “It works really well.”

Sure, that customer is valuable to you, but what specifically is the value of that customer? It’s pretty easy to calculate. Essentially, you need to look at what a customer spends with you on an initial purchase; how much they spend each year on additional products and services; and how long the average customer sticks with you. You then have a concrete answer to the value of a customer to your business.

I do believe that as you calculate that value, you’ll be surprised at how high it is (most tend to greatly underestimate the ongoing value of a customer). But don’t stop there. I recommend looking at your customers in at least three segments, to add context to the value calculation.

In a B2B world, some useful segmentation includes: company size, vertical industry, core product purchased, and geographical location.

For B2C vendors, segments might include: online vs. in-store buyers, location, buyer age, and time since first purchase was made.

The reality is that once you understand the value of a customer – specifically, as in “a customer is worth $18,572 over the life of our relationship” – you are in a better position to cost-justify investments that promote customer satisfaction improvements, contact center additions, and policy changes.

Joe Staples – chief customer value officer