Here is an alternative method to valuing a company that you don’t often see, but can be very insightful and powerful.

You calculate the lifetime value of either:

- Your product or service lines

- Your customer base

To calculate this you need the combination of several numbers:

1. The annual expected revenues.

2. The cost of servicing these revenues on an annual basis. These could include marketing costs, cost of goods or services, technology cost, shipping cost or other cost related to the sales of the particular products or services.

3. The difference between the two is the annual contribution.

4. The number of years you expect to keep the product or service or customer.

5. The net present value of the annual contribution. This is taking the annual contribution for the number of years that the product or service will be in place and then discounted back to a present value.

6. The cost of acquisition. This would be what does it cost to acquire the customer in the first place.

7. Lifetime value of the customer. This would be the present value of the annual contributions generated, less the cost of acquisition.

8. Overall lifetime value. This would be the sum of all the product, service or customer lifetime values.

The beauty of this view is that it really highlights where the greatest areas of value are- which products, which services, which customers. It might not be the ones that you think. These numbers will make you think about how to maximize or protect your crown jewels that stand out among the others.

Give the lifetime value approach a try and see your company value in a whole new light.