ROI: How Much Is a Customer Worth? (Part One)

On March 26th, Pryor Consultation and Spark Marketer are teaming up to give a Nashville Chamber of Commerce Business Studio seminar designed to help you determine how much a customer is worth. In preparation we’re outlining a lot of our thoughts here and over at the Spark blog.  

Why Is It Important?

Some business owners might wonder why it’s even necessary to know the value of a customer. How can you use that information to improve anything? Here are a couple main ways it will help:

  1. You’ll be empowered to find more good customers instead of chasing worthless ones

  2. You’ll be able to evaluate the type of marketing needed to grow

  3. You’ll be in position to develop better sales strategies (how to best approach the good customers)

All together, this will make you a better business person. Period. Interested?

ROI and conversion rate optimization - Nashville

Return on Investment

I never like to assume anything when it comes to the endless number of three-letter acronyms in the business world. Hopefully Return-on-Investment (ROI) is one you’re familiar with, but if not, let’s consider it here briefly.  

In its purest form, you need to know whether you are seeing a positive or negative return for the investment of time, people, and marketing dollars you put into running your business.  If you don’t have a positive ROI, you’re running a business that is likely not profitable and will ultimately fail.  

Customer Valuation

For the sake of this series, we want to consider what it means to assign a dollar value to your customers. When you know that figure, you’ll be able to begin calculating the ROI of a variety of your efforts, and more quickly determine if you’re making smart, business-building decisions.

For example, if your most profitable client types are the ones who fit a certain demographic and generally always buy Widget A after 2 weeks of consideration, then you may realize you’re spending too much time and too many marketing dollars courting Widget B clients who take 3 months—if you’re lucky—to sign a contract.

For a practical example, if you are a caterer who has an easy time closing and delivering on corporate lunches, then perhaps you should focus on those instead of pouring effort into filling your weekends with wedding events. These are two completely different types of clients with differing revenue potential and sales processes.  You could easily spend all your time and money pursuing the wrong type of client . . . and that’s what we’re working to avoid!

In our next post, we’ll take a look at some more example and then dive into the math of it all (hooray math!). In the meantime, head over to the Chamber of Commerce site for more information on the seminar.