How much do you think a new customer is worth to Starbucks?


Crazy, right?

Do you know how much a new customer is worth to you?

Calculating Lifetime Value

The typical customer lifetime value calculation is:

(Average Value of a Sale) X (Number of Repeat Transactions) X (Average Retention Time in Months or Years for a Typical Customer)

This tells you how much money you’re going to make, on average, from each customer you acquire. If you spend less than that to acquire and service the customer, you’re making money.

The more you can increase customer lifetime value, the more you can afford to spend to acquire customers. The more total customers you acquire, the more total money you make.

That’s the kind of math we like.

How Can You Generate More Value from Your Customers?

Let us count the ways . . .

Keep Customers Longer

The longer you keep a customer, the more money you can make from them.

There are some industries (e.g. funeral parlors) where you’ll only have one interaction with a customer. (Even with that example, though, there are ways to increase each customer’s value. We’ll discuss the value of referrals and reviews later in this post.)

In most industries you have the opportunity to form a relationship with a customer. They may come back tomorrow (coffee shop), next month (water delivery service), next year (toy retailer), or next decade (realtor).

The more times you get your customer to work with you again, the more valuable they become to you.

So what are some practical ways to increase your average customer retention time?

1. Deliver Service that “Wows”

Delivering outstanding customer service should be an obvious winning strategy for most businesses, but too many companies don’t understand the critical role that taking care of your customers plays in making a business successful.

You shape how your customers feel about your brand by the experience you give them. Amazing experiences = repeat business.

Apple, for good reason, is the cliché example of a business that understands customer experience and makes it incredible. From meticulous packaging to Genius Bars, Apple makes you feel good about Apple. That, and great product, is what brings people back.

2. Build a Relationship

People love stories.

What story can you tell about your business?

Read Shoe Dog by Phil Knight, and then try thinking about Nike the same way you did before you read the book. It won’t work. Stories turn a transaction into a relationship.

You may not be a bootstrapping startup with a hunger to win, like Nike. Or maybe you are, but you know that’s not the story that is going to connect with your target audience of enterprises looking for stable partners. Whatever your situation, find an honest, relatable story that you can communicate, and then build that relationship with your customers.

Your story doesn’t even need to be the autobiography of your business. Think about Chick-Fil-A: Their famous cow ads tell a story that connects and delights.

3. Underpromise, Overdeliver

Set expectations. Meet them. Exceed them.

4. Run a Loyalty Program

Amazon Prime is the ultimate loyalty program example. With an estimated 60+ million Prime members, Amazon rewards people for buying on Amazon instead of the million other options online and around the corner.

You’re not Amazon, so maybe you can’t charge people to join your loyalty program. But you can definitely begin implementing your own loyalty program version to increase your customer lifetime value.

Looking for some stats? The 2016 Bond Loyalty Report estimates that 67% of consumers modify the brands/companies they purchase from in order to maximize points.

5. Remind Customers that You’re the Solution to Their Problem

People are busy.

Unlike you, they don’t wake up and go to bed thinking about your brand.

Keep in touch with your customers to make sure they know that you’re the solution to their problem.

Walmart doesn’t advertise because people don’t know what Walmart is. Walmart advertises because people need to be reminded that Walmart is the solution to their need to buy things.

6. Solve Problems Your Customers Didn’t Know They Had

This is how the really great disruptors do it.

People weren’t asking for iPods when Steve Jobs held up the first iPod in 2001. He saw a problem that people didn’t fully understand they had, created a solution, and changed history.

Don’t get complacent about your product or service, even if your customers are praising it to the heavens. Fix the problems your customers don’t know they have.

Upselling and Cross-Selling

Get more value from your customers by upselling and cross-selling.

The mobile gaming industry is a perfect example of upselling. Upselling is why Machine Zone could afford to spend $40 million advertising the “free” Game of War: Fire Age game. Get people in the door with a freemium or basic offer, and leverage that relationship into revenue.

Are there add-on services you can offer your customers? Accessories to improve the products they already own? Areas you can expand your skillset to handle?

Encourage Referrals

Your customers are valuable assets not just because they’re paying you, but because they’re a gateway to their friends’ wallets.

According to Nielsen, people are 4 times more likely to buy when referred by a friend.

Encourage referrals by:

  • Offering your customers incentives to refer friends (e.g. gift cards, a free month of service, points, etc.)
  • Make the referral a win-win (e.g. give your customer an exclusive coupon code to give to a friend)

Referral programs aren’t just for B2C companies.

Here at StubGroup we’ve had great success with our referral program, in which we give clients a special “thank you” gift if they refer another business to us that becomes a new StubGroup client. If you’re genuinely providing good service, your clients should be happy to send new business your way.

The key to a successful referral program is asking for referrals:

  • Give customers social sharing links on order confirmation pages
  • Ask your customers on the phone if they’re willing to refer a friend
  • Put a link to your referral program in your email signature
  • Email your list asking them to share with a friend

Build Credibility Using Your Customers

People want to know you can be trusted. They want to know you’ve already solved the problems they have. They want to know your products will last.

You can tell them you’re amazing until you’re blue in the face, but it won’t have the same impact as proving it with other peoples’ words.

1. Testimonials/Ratings

Use testimonials on landing pages to answer frequently asked questions and increase your conversion rate.

2. Case Studies

Use case studies on landing pages, as content in your sales process, and in blog posts to show off your abilities and build your thought leadership in your vertical.

3. References

Do you have an extra-special relationship with some of your clients? They may be willing to act as a reference for you. Offer them (sparingly, and with their permission) as references with whom prospective customers can talk for an honest opinion about your business.

4. Gold Stars in Your Google and Bing Ads

Google and Bing look for reviews on specific third-party platforms and, if you have enough, will show gold stars with your ads.

User-generated Content

Are customers posting pictures of your product on Instagram? Raving about your service on Facebook? Posting reviews on YouTube?

You can use this content in your advertising campaigns. The beauty behind this strategy is that you’re not asking people to believe you when you say you’re great. Other people are saying it — you just need to share what they’re saying, via smart advertising.

Lookalike Audiences

Each time someone pays you money you learn something vitally important. You’ve identified a person who loves and/or needs your product or service so much that they are willing to pay you for it. Find more people like that, and you’ll make more money.

That sounds ridiculously obvious, but the idea translates into digital advertising in an incredibly tangible way.

You can upload lists of your customer email addresses/phone numbers to Facebook and create “lookalike” audiences full of Facebook users who are similar to the people who’ve already done business with you.


You can do something similar with Google, although not as effectively as with Facebook.

Understand and Increase Your Customer Lifetime Value

Hopefully you can take some ideas from this post that will help you understand and increase your customer lifetime value.

Are you using a strategy we didn’t mention in this post? We’d love to hear about it!