TulipTools Internet Business Owners and Online Sellers Community

Quote: "Lifetime value is expressed as the total dollar value of your average customer over the entire period that they're likely to do business with you.." - Bob Serling

Determining a customer's lifetime value can reap big profits as you grow your business. However, if you are like just a bout all small business owners, you most likely have never determined the lifetime value of your customers and are thus forfeiting maximum income potential.

Do you understand what your customer's lifetime value is?

Do you acknowledge why knowledge of your customer's lifetime value is important? If you don't understand the answers to these two questions, read on...

Quote:...the Visitor Lifetime Value (VLV), which refers to how much profit you can expect to generate from a visitor, not on just the first visit, but for all follow-up visits and orders.

Here is an example:

    * Site conversion rate: 1 %
    * Average profit per order: $50
    * Average number of orders placed per customer over his or her lifetime: 2
    * In this scenario, the CUSTOMER lifetime value is $100 ($50 x 2) The VISITOR lifetime value is $1 ($100 x 1%)

    * The Visitor Lifetime Value is the one metric that determines how much you can pay for traffic. If your VLV is $1.00, you should not pay $1.50 for a visitor unless you can find a way to raise the VLV above that level.

The VLV will differ across a retail site based on many factors. For instance, visitors that come looking for Vitamin C might have a VLV of $1 while visitors that come looking for multi-vitamins might have a VLV of $2. It is important to try to get this level of detail so that you can pay for advertising appropriately. In this scenario, we would bid much more for multi-vitamin shoppers. If this level of reporting is too difficult, you can base your advertising decisions on an average for the entire site, and you really only need to know the three factors above — site conversion rate, average profit per order, and average number of orders — placed per customer...