Let’s look at the three legs of the customer lifetime value calculation and show what it has to do with marketing. 

The three legs of the stool are:

1. The annual margins that the customer will generate (net of the cost of servicing).

2. How many years the customer will remain with you.

3. What does it cost to acquire a particular customer?

The lifetime value of the customer is the margins generated by the customer times the number of years that the customer will be kept minus the cost of acquiring the customer.  Even better is to present value of the calculation.  In other words, to present value the income stream from the customer against the acquisition cost that may take place upfront.

Marketing can help on all three of these different parameters:

1. Encouraging repeat purchases.

2. Getting customers to buy up to higher value products or services.

3. Stimulate referrals which lower the cost of acquisition.

4. Educate customers so the servicing costs drop.

5. Bring an inflow of customers into the pipeline sooner.

6. Pull in customers from other sources.

In other words, marketing can increase the annual margins per customer, extend the number of years and lower the cost of acquiring customers.

Take a look at your marketing.  How effective is it doing in each of these three areas?

Jon Paul, MBA, CPA, CMC, CM&AA

President, Value Added Finance Resources
Bringing new insights on results and maximizing company value