{"id":392,"date":"2018-01-02T23:07:18","date_gmt":"2018-01-02T23:07:18","guid":{"rendered":"https:\/\/ukhangoutcommunity.com\/news\/?p=392"},"modified":"2022-05-25T09:51:20","modified_gmt":"2022-05-25T08:51:20","slug":"calculating-the-value-of-a-lifetime-customer-what-you-need-to-know","status":"publish","type":"post","link":"https:\/\/ukhangoutcommunity.com\/knowledge-centre\/2018\/01\/02\/calculating-the-value-of-a-lifetime-customer-what-you-need-to-know\/","title":{"rendered":"Calculating the Value of a Lifetime Customer \u2013 What You Need to Know"},"content":{"rendered":"\n<figure class=\"wp-block-image is-resized\"><a href=\"https:\/\/ukhangoutcommunity.com\/news\/wp-content\/uploads\/sites\/82\/2018\/02\/cover-min.jpeg\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/ukhangoutcommunity.com\/news\/wp-content\/uploads\/sites\/82\/2018\/02\/cover-min-300x171.jpeg\" alt=\"\" class=\"wp-image-393\" width=\"839\" height=\"478\" srcset=\"https:\/\/ukhangoutcommunity.com\/knowledge-centre\/wp-content\/uploads\/sites\/82\/2018\/02\/cover-min-300x171.jpeg 300w, https:\/\/ukhangoutcommunity.com\/knowledge-centre\/wp-content\/uploads\/sites\/82\/2018\/02\/cover-min-768x439.jpeg 768w, https:\/\/ukhangoutcommunity.com\/knowledge-centre\/wp-content\/uploads\/sites\/82\/2018\/02\/cover-min-1024x585.jpeg 1024w\" sizes=\"auto, (max-width: 839px) 100vw, 839px\" \/><\/a><\/figure>\n\n\n\n<p>Attracting new customers is the most important marketing goal you can have. That\u2019s what you\u2019d think based on the way a lot of people approach marketing.<\/p>\n\n\n\n<p>But is that the correct approach? Is your time (and money) well spent if you focus on attracting new customers?<\/p>\n\n\n\n<p>Brace yourself, because the opposite is true. You\u2019ll get the biggest bang for your marketing buck if you make retaining existing customers a priority.<\/p>\n\n\n\n<p>That doesn\u2019t mean that attracting new customers is a waste of time. But it does mean that your long-term goals might be suffering as a result of your current marketing strategy.<\/p>\n\n\n\n<p>With that in mind, let\u2019s talk about how to calculate the value of a lifetime customer. How much is it worth to hang on to one customer?<\/p>\n\n\n\n<p><strong>The Cost of Acquiring New Customers<\/strong><\/p>\n\n\n\n<p>You\u2019ve probably heard the statistics about the cost of acquiring a new customer compared to the cost of retaining an existing one \u2013 but they bear repeating.<\/p>\n\n\n\n<p>Research shows that it costs&nbsp;<a href=\"https:\/\/www.mycustomer.com\/experience\/loyalty\/infographic-customer-acquisition-vs-retention-costs\">five times as much<\/a>&nbsp;to get a new customer to make a purchase as it does to build loyalty with the customers you already have.<\/p>\n\n\n\n<p>Why is new customer acquisition so expensive? It makes sense if you think about it. For example:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Consumers require, as a rule, 7 to 10 \u201ctouches\u201d from a brand before they\u2019ll make a purchase<\/li><li>Only a small percentage of the people who see your ads or social media posts will make a purchase<\/li><\/ul>\n\n\n\n<p>That explains it, doesn\u2019t it? You must work hard to attract a new customer. It\u2019s expensive. Wouldn\u2019t you rather put your money to work keeping the customers you have?<\/p>\n\n\n\n<p><strong>Loyalty Drives Sales<\/strong><\/p>\n\n\n\n<p>What happens when a customer makes a purchase from you? It turns out there are some psychological quirks that kick in that make it more likely they\u2019ll buy from you again.<\/p>\n\n\n\n<ol class=\"wp-block-list\"><li>The&nbsp;<a href=\"https:\/\/youarenotsosmart.com\/2011\/03\/25\/the-sunk-cost-fallacy\/\">Sunk Cost Fallacy<\/a>&nbsp;tells us that once we\u2019ve spent money on something, it must be a good thing. We\u2019re more likely to give money to the same source because it reinforces our belief that we made the right decision the first time around.<\/li><li><a href=\"https:\/\/www.inc.com\/neil-patel\/4-powerful-cognitive-biases-that-could-transform-your-marketing.html\">Choice-Supportive Bias<\/a>&nbsp;is what makes us more comfortable buying familiar things than unfamiliar ones. Our reasons for buying something might not be rational, but we\u2019d rather stick with a product we\u2019ve already tried than choosing a new one. Think of it as \u201cthe devil you know\u201d in action.<\/li><li><a href=\"https:\/\/www.forbes.com\/sites\/jaysondemers\/2016\/12\/16\/8-cognitive-biases-that-will-drive-the-future-of-marketing\/2\/#7d66c0f2700b\">In-Group Favoritism<\/a>&nbsp;is a cognitive bias that Apple used quite effectively to create a feeling of camaraderie and superiority among their customers. In other words, identifying with the Apple brand was something that made their customers feel special \u2013 and that increased their loyalty to the brand.<\/li><\/ol>\n\n\n\n<p>The takeaway here is that one-time customers want to become repeat customers. There\u2019s a human inclination to be loyal and to repeat behavior, and that\u2019s one of the reasons that it\u2019s less expensive to keep a customer than to attract a new one.<\/p>\n\n\n\n<p><strong>What Your Customers Are Worth<\/strong><\/p>\n\n\n\n<p>How much is a lifetime customer worth? As you might expect, the specific answers can vary. One loyal customer might spend ten times as much as another. But that said, there are some statistics that can show you the average lifetime value of a single customer.<\/p>\n\n\n\n<p>The initial conversion rate for any potential customer is very low \u2013 usually between 3% and 5%. However, the&nbsp;<a href=\"https:\/\/www.websitemagazine.com\/blog\/what-s-the-value-of-a-repeat-customer\">conversion rate goes way up<\/a>&nbsp;when we\u2019re talking about repeat customers.<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>A one-time customer has a 27% chance of making a repeat purchase<\/li><li>A two-time customer has a 45% chance of making a third purchase<\/li><li>A three-time customer has a 54% chance of making a fourth purchase<\/li><\/ul>\n\n\n\n<p>Let\u2019s talk about what that means in practical terms. If a prospective customer has only a 3% chance of converting, it means that 97 out of 100 prospects are costing you money that you have no chance of recovering. Pretty grim, right?<\/p>\n\n\n\n<p>But those 3 customers who do convert are&nbsp;<em>nine times as likely<\/em>&nbsp;to make a purchase as any new customer would be. Just like that, your conversion rate skyrocketed!<\/p>\n\n\n\n<p>As you can see above, the numbers continue to increase over time. That\u2019s due in part to repeat customers having a comfort level with your products, as we discussed above.<\/p>\n\n\n\n<p>Now, let\u2019s use some hard numbers to get an idea of what a lifelong customer might be worth to you. Let\u2019s say that you spend $1,000 a year on marketing to new customers, and a year, you attract 100 new customers. That means that your cost per customer acquisition is $10.00.<\/p>\n\n\n\n<p>That number might seem high, but you can\u2019t understand your acquisition cost without including the average purchase made by customers and the likelihood that they\u2019ll buy from you repeatedly.<\/p>\n\n\n\n<p>If your product sells for $20.00 with a 100% mark-up, and you spend 25% of your profits on overhead, you\u2019re looking at an initial return of $7.50 per customer. In other words, you\u2019ve earned back 75% of what you spent to acquire that customer.<\/p>\n\n\n\n<p>Now, let\u2019s look at what happens if that customer buys from you repeatedly, assuming all prices, mark-ups, and overhead stay the same:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>If they buy from you twice, you\u2019ll have earned back 150% of what you spent<\/li><li>At three times, your ROI goes up to 225%<\/li><li>At four times, it increases to 300%<\/li><\/ul>\n\n\n\n<p>As you can see, each additional purchase puts you further into the black with that customer. If yours is the type of product that people buy every month or even once a year, it\u2019s easy to see why you would want to retain that customer for as long as possible. Even if you spend a little money on email marketing or loyalty programs to help retain them, it\u2019s still more cost-effective than it is to find new customers.<\/p>\n\n\n\n<p><strong>Conclusion<\/strong><\/p>\n\n\n\n<p>Attracting new customers might feel more exciting than retaining old ones, but you\u2019ve got to ask what\u2019s more important to you: the thrill of attracting a new buyer, or the money that comes with retaining an existing one. Personally, we\u2019ll take the money.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Attracting new customers is the most important marketing goal you can have. That\u2019s what you\u2019d think based on the way a lot of people approach marketing. But is that the correct approach? Is your time (and money) well spent if you focus on attracting new customers? Brace yourself, because the opposite is true. You\u2019ll get<a class=\"moretag\" href=\"https:\/\/ukhangoutcommunity.com\/knowledge-centre\/2018\/01\/02\/calculating-the-value-of-a-lifetime-customer-what-you-need-to-know\/\"> Read more&#8230;<\/a><\/p>\n","protected":false},"author":1,"featured_media":393,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[40,90,88,89],"tags":[93,92,91],"class_list":["post-392","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business-news","category-marketing-automation","category-reputation-marketing-1","category-video-marketing-1","tag-customer-engagement","tag-customer-retention","tag-reputation-marketing-2"],"_links":{"self":[{"href":"https:\/\/ukhangoutcommunity.com\/knowledge-centre\/wp-json\/wp\/v2\/posts\/392","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/ukhangoutcommunity.com\/knowledge-centre\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/ukhangoutcommunity.com\/knowledge-centre\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/ukhangoutcommunity.com\/knowledge-centre\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/ukhangoutcommunity.com\/knowledge-centre\/wp-json\/wp\/v2\/comments?post=392"}],"version-history":[{"count":0,"href":"https:\/\/ukhangoutcommunity.com\/knowledge-centre\/wp-json\/wp\/v2\/posts\/392\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/ukhangoutcommunity.com\/knowledge-centre\/wp-json\/wp\/v2\/media\/393"}],"wp:attachment":[{"href":"https:\/\/ukhangoutcommunity.com\/knowledge-centre\/wp-json\/wp\/v2\/media?parent=392"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/ukhangoutcommunity.com\/knowledge-centre\/wp-json\/wp\/v2\/categories?post=392"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/ukhangoutcommunity.com\/knowledge-centre\/wp-json\/wp\/v2\/tags?post=392"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}