You may publish this article in your ezine, newsletter on
your web site as long as the byline is included and the
article is included in it's entirety. I also ask that you
activate any html links found in the article and in the
byline. Please send a courtesy link or email where you
publish to: support@multiplestreammktg.com
----------------------
How To Determine your customer's value
By Abe Cherian
Copyright ? 2005
This literally can be the most profitable thing you'll ever
do for your business and that is to understand exploiting
the actual value of your customer. It's been called the
Marginal Net Worth and the Lifetime Value.
What is the current worth of one of your customers or
prospects? It's the total profit of an average customer
over the lifetime that they do business with you. That
includes all subsequent sales minus advertising/marketing
and your fulfillment expenses.
Let's say the average customer brings you $75 per sale.
They re-purchase 3 more times in a year. Their average
order amount is $300. On each $300 reorder, you make $150
gross profit The average life lasts 2 years. Every new
customer is worth $975.
You reach the 975 by adding the $75 initial profit to the 3
other purchases each year of $300. Only $150 is profit, so
$150 times 3 equals $450. If they do that for 2 straight
years, that's $900 plus the original $75.
If this is our average customer and they're worth $975 in
profit and it only costs you $30 through your advertising/
marketing expenses to get them, every time you spend $30
you receive $975 back .
You would be foolish not to increase your advertising/
marketing and promotional budget to produce as many of
these $30 cost customers so you would spend $30 over and
over and over again to get $975 back
Theoretically, you could spend $975 to get that customer
because you know they will come back and spend $975 and you
will break-even. Of course, we don't want to do this.
Remember, this is an average customer. Some will buy more
and some will buy less This is an average number.
Now you "know you can spend up to $975. You could just as
easily be spending 100% of your $75 profit just to get that
first sale because that's just the first sale's profit, and
you'll still end up with $975 over the next 2 years.
If you offered to give that $75 service for free and it
doubles your customers, it "would double your profits over
the next 2 years.
One in 100 business owners think about this You want to
spend everything you can justify to bring in a customer as
long as that customer costs you less than they earn you. If
you can't afford to spend more than the entire profit from
the first sale, remember you'll be making money just in a
few months from them. Start out spending what your cash
flow can justify. After a quarter or several months after
their re-order profits come in, then you can step up your
ad budget
