Research Perspective

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The Value of a Lifetime Customer

Acquire and Retain More Customers with the Right Contact Center

The Value of Customers

It is a long-accepted truism that it costs more to acquire a new customer than it does to keep an existing one. For any small business that is looking to grow, it makes sense to devote considerable resources to the challenge of keeping customers happy and satisfied because they represent a unique, developable asset. Too many businesses take a small-ball approach to customers, seeing each transaction as a one-off instead of an opportunity to create lifetime relationships. These relationships must be considered in terms of their value to the organization, and one way to do this is via customer lifetime value (CLV), a calculation that describes the total revenue that an organization can expect once a customer is acquired.

There are many ways to calculate CLV, ranging from very crude approximations to highly detailed forecasting models. In essence, the process compares the total revenue projected to come from a customer to the expected duration of the relationship. For example, if an account can be expected to generate $1000 in revenue per year, over seven years the relationship with that customer is worth $7000 minus the cost of serving that customer (ignoring net present value adjustments). What makes it difficult to nail down is putting numbers to the variables: how long the relationship will last, how much revenue will come from it, the cost of maintaining the relationship and reducing the amount to net present value. Whatever calculation method is used, the goal is to put a long-term perspective in place. Investing in customer loyalty and retention programs is one of the best ways small and mid-sized businesses can generate cash flow while cultivating a base of potential brand advocates who will spread the word about positive customer experiences. Lifetime customers are a revenue driver, a source of word-ofmouth recommendations and, best of all, a competitive differentiator.

 
 

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