Life Time Value of your customer lesson 2

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Life Time Value of a customer lesson 2. Most people understand measuring profit by a product or service. We understand that a large pepperoni is more profitable than a medium cheese pizza.

Everyone thinks that marketing is about the products, we have been brainwashed to think that way. Profitability needs to be measured bu the customer! Which customers are most profitable? How do you calculate that?

1. Sort your customers by what they spend over a period of time.
2. Group your customers into buckets for the sake of time(ie all customers who spents under $40, those who spent $41-50, $51 and up and so on for 12 months.
3. For each group subtract all costs so that your left with the difference between that and the amount spent. This amount is the individual customer profitability.
4. Take overall revenue and divide by individual profitability to get a profit percent for each bucket.

So for example the Jones spent $10,000 on pizza last year. They order every week by calling in They never know what they want so it takes longer on the phone each call. They use a coupon and live on the outer edge of the delivery area.

Customer two, Mr Roberts is 22 and lives in the area and spends $3,000 on pizza last year. He responds to your email and orders online. He always gets a loaded meat pizza and picks it up at the store.

Who is the most valuable customer? I don't know, but you need to know for your business! When you know profitability by segment you can determine how much to invest in acquiring in each segment.

You need to think about how to market to the different audiences based on their margins. If Mr Roberts starts calling instead of ordering online or starts using delivery half the time your profits might slip.

IF you can drive better coupons to the Johnsons based on their profitability and get them to order online, or get one of their neighbors to order you can spread your delivery costs, and your profit structure might change.

This blog post was written by William Fennell an internet marketing consultant based in Michigan City. 219-210-6000
http://www.thelittleguymarketing.com/