“Hand Grenade” Lifetime Customer Value (LCV) for Small Business Marketing Automation
Lifetime Customer Value (LCV) of a customer is both one of the most important numbers to know for small business marketing automation and one of the most difficult to calculate. The challenge of calculating LCV is determination of “lifetime”. It is here that you decide just how analytical you want and need to be to achieve your objective.
Hand Grenade Simple
In the discussion below we will be covering “hand grenade” LTV suitable for small business marketing automation; we just want to get close enough to gain perspective for early marketing campaigns.
The Calculations Please
I want this number to be simple, fast and informative enough that we can get started with marketing asap. Most client’s I’ve worked with over the years have not collected the data or done so rigorously enough for more precise LCV to be reliable anyway.
- Total all revenue from the previous 12 month period excluding any unusual or non-pattern revenue i.e. Government grant, a test order from a partner, etc.
- Total the number of clients.
- Divide total client number into total revenue number.
- Using the result calculates two additional numbers; one that is 33% higher and one that is 33% lower.
- Calculate the average net profit per customer over this average lifetime.
- Segment the customer list by SIC code or some other obvious and useful method.
- Run the calculations from above.
The numbers from these calculations will give you a perspective when deciding what you are willing to invest in customer acquisition cost using small business marketing automation. The general consensus is that you should not spend more to acquire that next customer than the net profit less your target profit to be likely gained from acquiring that customer.
Customer Acquisition Cost
The next blog entry will be a “hand grenade” method for determining what your current customer acquisition cost might be when using small business marketing automation.
Having a “hand grenade” level perspective on these two numbers is far better than having no idea or an idea generated completely out of context with your businesses actual numbers.
Once you possess these two numbers you will be in a position to begin to make some decisions about how to go about accelerating growth beyond your current growth rate using small business marketing automation. That and more will be covered soon on this blog.
Once you start growing and collecting more of the right data that typically flows out of a well designed small business marketing automation program you can do the more precise LCV calculations that can have a significant impact on your balance sheet.