Are all customers created equal?

It goes without saying that customers are good, without them, your business would be.. well, not a business. But does that mean they all have equal value?

Imagine there's a business call Sosoya. Their handcrafted something are popular with various customers, but they want to focus on attracting and retaining the "right" ones, so they sort their current customers into different types and starts evaluating each for their long-term business value

While we hypothesized which customer be the most valuable, there's a better way to do this: customer lifetime value (CLV)

CLV is your chance to be all "Me Me Me" instead of just looking at your customers likes, wants, and needs, you can say, " What about my needs? How valuable are these customers to me? How much of my money should I spend to get them?" So, CLV helps you answer those questions by looking at the entire relationship you have with a type of customer and estimating how much that person is worth to your business, knowing your target buyers CLV helps you grow your base of "right" customers, which helps you decide how much you're willing to spend to keep those customers coming back

So, how do you figure out your customer's CLV? It can get tricky and there are different ways to do it. But to help you get your feet ever-s-gently wet, this kind will help you as simple as I can

Let say Budi owns a hotel called Frenon Hotel away from home. To get his CLV, he needs to research how his business has performed in the past, The 3 "past behaviors" he should look at are the average annual transactions per customer, average profit per transaction, and average number of years people remain customer. Fo raverage annual transaction per customer. He notes that most of his guests visit once a year, to get the average profit per transaction, he looks at the average final guest bill, which is $1000 per person. After subtracting expenses like housekeeping, Budi estimates he makes a 25% profit off each bill - so that's $250 profit per customer.

For the average number of years customers remain, he calculates that his guests normally return at least once in the following year, meaning they stay on as customers for 2 years. Budi takes the nubers (1 stay per year, $250 profit per customer, visiting 2 years in a row) and plugs them into a formula

Here's the formula : (Average annual transaction per customer) x (Average profit per transaction) x (Average number of years people remain/revisit) = CLV, And here's how it looks with Budi info plugged in: (1) x ($250) x (2) = $500CLV

So that's why the audience means asset for us, if we can maintain and gathering based on our goals.