Lifetime Value of a Customer: how much?

For sales of new cars the lifetime value of a customer can be huge.

My father-in-law buys a new Volvo every few years. He's on number 5 right now. Heading for £100,000 spent at the one dealer. My mother-in-law is driving her 3rd Toyota. The garage let her have a Toyota for a whole weekend and she was hooked. Money well spent.

lifetime value

It's not just cars. Any product or service has a lifetime value (LTV) for a customer. If you have a defined and measured sales process you can factor in the costs of getting new prospects in at the start.

Wikipedia defines Lifetime Value as:
"...the present value of the future cash flows attributed to the customer relationship."

This works online as well. It's easier to control how many leads you get and how much they cost. It's easier to measure your sales process. It's easier to vary your sales process and look for improvements. It's easier to stay in touch with customers - and bring 'dormant' people back into the loop.

And if your website is converting better than your rivals then you can invest more in traffic at the front end.

2 other angles on lifetime value (LTV)

Analytics evangelist Avinash Kaushik gets a friend to explain calculating customer lifetime value. The best customers can be worth much more than the average.

Duct Tape Marketer John Jantsch suggests that when you add direct sales and referrals then the lifetime value is infinite.