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Your customers are the most critical component of your business. You strive to keep your current customers happy and work even harder to attract new ones. But did you ever wonder how much each customer was worth to your company? Calculating your customers’ value is more than just an academic exercise. It can help managers make critical investment and marketing decisions. It can also give your company a competitive advantage over its rivals as well.

Doing the Math

One way to determine your customers’ worth is to compute their customer lifetime value, or CLV. CLV is defined as “a measurement of all of the value your business will derive from your entire relationship with the customer.”  There are many different ways to determine CLV. In its most basic form, you can compute your customer’s lifetime value by multiplying the annual revenue (or sales) of each customer by the number of years you expect to have the customer. Once you have that number, subtract your customer acquisition costs (i.e. marketing or sales staff expenses). The remaining number is your customer lifetime value.

Using CLV

Determining CLV is important for several reasons. First and foremost, it can help you make critical resource decisions. If you can estimate how much annual revenue a potential customer will provide, you can determine whether or not investing in marketing for them is worth the cost. It can also indicate when to spend a great deal of money upfront, at a loss, to land a customer with long-term revenue potential. Additionally, CLV can help you develop long-term cash flow forecasts, so you can gauge when to make critical capital investments in your company as well.

Parting Thoughts

Customers provide your company many things. Their insights help you improve your products or services. They may even act as a marketing team to help you attract new customers. Determining the value of each customer is a critical part of managing a successful company.

Our team here at VerifiaBill truly understands this concept. We value our customers and have worked hard to create a customizable portal to your specifications. We strive to save you money on insurance bills and to accommodate your needs in order to maintain long-lasting relationships.