How Much is a Customer Really Worth?

When we think of a customer, we automatically think of a sale being made. That customer whom you’re on the phone with right now could pay your utilities bill! Most of us sales professionals forget that the true value of each customer is higher than just one sale, expand that into many sales over his or her lifetime.

This important fact helps you determine how much you might be willing to spend to acquire a new customer or client. Whether that means three hours of your time or three hundred dollars of your money. And this fact is also important because it forces you to realize how much it costs to lose a customer once you’ve got him or her.

If you haven’t heard of Stew Leonard, he’s the most successful independent grocer of all time. He used this fact frequently to determine how much his customers were worth. He figured that the average customer would shop with him for seven or eight years before moving out of the neighborhood. He averaged that a $250 monthly food budget was appropriate at the time. Which amounts to $3,000 a year in sales, or $21,000 over the course of seven years. His gross margin was about 10%, that means that a customer was worth $2,100 to him (that’s without factoring in the word of mouth.) Once Stew realized that each and every customer was worth more than $2,000, he was a lot more willing to replace a box of rotten strawberries or run an extra ad.

Another company who focuses on the value of a customer is Federal Express (FedEx.) They figured that if a mid-size company sends 30 packages a week (at $25 each), that’s $750 a week, or $18,750. If a customer gets angry over a $25 shipment and switches his business to a competitor, FedEx loses thousands and thousands of dollars. Their technique is to authorize every local supervisor to grant a $100 refund on the spot, no questions asked, for any delayed shipment. Considering each customer is worh $18,750 per year, I’d say $100 is a small price to pay.

So, the next time you’re thinking of how much a client is worth to you, think of this technique. Figure out what your gross margin is, analyze the amount of time you usually keep a customer, calculate an average amount of purchases, and figure it out!