Lifetime value of a customer/cost per customer

Two things every business and non-profit needs to know:

  • How much does it cost you to get one new customer.
  • On average, what's that customer worth over the relationship you have with her?

The internet revolutionizes both sides of the equation.

Facebook and Twitter are marvels because for each, the cost of a new customer is vanishingly close to zero. When you can get people into a relationship for nothing, you don't need to make much on each one to be delighted with the outcome.

Note that the ongoing, digital connection with a customer can dramatically increase the lifetime profit as well. Netflix is far more likely to have a higher average lifetime value than the local video store. Musicians are moving from making a dollar a listener from CDs to hundreds of dollars a true fan in collectibles and concert tickets–things they can only deliver because they know who their best customers are.

On the other hand, legions of unsophisticated marketers are getting both sides of the equation wrong.

They invest a lot in hoopla, spin and hype to get strangers to notice them (once), making the cost of a connection high, and then, once they borrow a little attention, they put everything into a one shot transaction, which few people engage in, and those that do create little value, because the permission asset is then discarded.

Dates, not singles bars. Subscriptions, not vegomatics.