The Most Important Number a Business Owner Should Know

FOR IMMEDIATE RELEASE
(Free-Press-Release.com) March 20, 2009 -- In business, there are many key numbers to track; pricing, inventories, profit, etc. But what is the MOST important number every business owner should absolutely know? It is the lifetime value of a customer for their business (CLTV).

If you are not familiar with this particular metric, it is simply what you anticipate all profits would be from a single customer over the life of their relationship with your business.

Why is this important from an owner’s point of view? CLTV-based business focus will revolutionize how an owner will operate his business; where the marketing efforts will be directed what data the business will collect on its customers, how employees should view customers when interacting with them, and what the market value of their business is.

Operating from a CLTV-centric focus affects every marketing and advertising programs the business executes. Every marketing dollar spent has a specific objective to achieve and a measurement system for evaluation of the campaign’s effectiveness. Are we spending to acquire new customers, retain existing customers or re-animate old customers? What is the cost to acquire new customers, maintain existing customers and revive non-buying customers? CLTV provides the basis for asking, spending and measuring these numbers.

The measurement of the CLTV can become overly complicated. See the linked calculator as an example. http://www.harvardbusinessonline.com/flatmm/flashtools/cltv/. This calculation may be as simple or as complicated as you want.

For most businesses, this measurement is more like a game of horse shoes or hand grenades. There must be enough customer data to determine how long a business has done business with a customer, the average transaction size, the average frequency of purchases per year and some assumptions about the cost of sales. It is perfectly acceptable to sample a few your high, medium and low volume customers to obtain an average. I. Getting started will help you get more exact, the main result being to be able to compare what you are spending to get a new customer with what you expect to get from that customer during their tenure with your business. Getting started with something, however raw that number might be, will get you thinking about its validity and how you could refine the CLTV number even more. This exercise will also provided the benefit of planning to collect the type of customer data needed by your business systems to measure the CLTV on an ongoing basis. Other customer data, such as beginning dates or date of first sale, sales ranking, and other methods of segmenting your customer base will allow you to analyze how long a customer stays with you, buying patterns and perhaps most importantly, who has not bought for a while (sometimes the easiest business to get back!).

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