What a customer is worth.
WHAT TO CALCULATE
Average purchase value How often they buy How long they continue Gross margin on their purchases
WHAT THAT PRODUCES
The value of a customer over their relationship with you.
WHY IT MATTERS
It tells you what you can afford to spend acquiring one.
THE COMMON ERROR
Valuing a customer at one transaction.
That undervalues them and leads to underspending on acquisition and retention.
WHAT TO SEGMENT BY
Type of customer Acquisition source Product bought first
WHY
Value differs substantially between segments, and that changes where you invest.
WHAT TO COMPARE IT AGAINST
Acquisition cost.
WHAT THAT RATIO TELLS YOU
Whether growth is profitable.
WHAT TO TRACK OVER TIME
Whether customer value is rising or falling.
WHAT A FALLING FIGURE MEANS
Either customers are buying less, or leaving sooner.
Those need different responses.
