November 21, 2011 at 1:14 PM

Follow this simple process to calculate the lifetime value of a happy customer.

And share the results you get with your team - there's no better way to impress upon them the importance of loyal customers and the value of customer satisfaction and retention!

1. Identify an average customer of your business - if you serve different market segments, you may want to focus on one to start with and repeat the exercise for the other segments later.

2. Identify the number of sales you'd make to this customer in the lifetime of your relationship with them.

3. Multiply that number by the number of products or services they'd buy in each transaction.

4. Now multiply that result with the average price that customer pays per product or service.

5. From this, subtract the average cost of acquiring a new customer.

This gives you the lifetime value to your business of your average customer.

A simple estimator for the cost of acquiring a new customer

Divide your annual marketing and advertising costs by the number of new customers you acquire in one year.

Try this exercise again based on a loyal customer.

Remember, they'll be more likely to buy from you over a longer period, visit more frequently, and spend more with each visit.

Plus they'll refer other customers to you.