Scenario A: If that customer buys your shoes just once, then yes, their value is $100, and the $50 you have spent on winning them over can seem quite high.
Scenario B: However, if you know that one customer would be a repeat purchaser of your shoes, then over the next 5 years, they may very well be worth $2,000 to you. Now how does that $50 sound?
* A recurring business customer is almost always more valuable to you than a one-off customer. So make sure you consider the long-term value of each customer when deciding how much money to spend in order to win them over. On the other hand, a non-recurring customer type is someone who may only buy your goods once.
Below I have demonstrated how you can efficiently work out the actual customer lifetime value for your business is. Make sure you are doing your figures based on new clients in one year.
Firstly split your customers into 2 types:
A: Recurring purchase customers
B: One-off purchase customers (Non-recurring purchases)
Then fill in your business statistics using the below example.
For this example, I have said that this particular business gets:
100 x one-off purchase customers each year that spend $100 per transaction.
And also gets 10 x recurring customers each year who spend roughly 5 x $100 transactions and shop with the business for about 5 years. This gives the company a total Lifetime Customer Value of $35,000.
A: Recurring purchase customers