Business tips – Calculate the value of existing and new clients
Content provided by Sanlam. See Financial Solutions for Business Owners, for tailormade financial advice.
There are basically three ways in which to grow a business, namely:
- by getting new clients
- increasing the share of wallet
- increasing the frequency of transactions with existing clients
Determining the value of a client can therefore be very useful. There is definitely a difference in the way we look at a potential client that is worth R50 vs R50 000 to our business.
Below is a formula you can use for such a calculation:
The value of existing client base ($) = N x V x F
N = number of clients (number)
V = average amount spent by clients at your business (value)
F = the number of times a year they spend the above-mentioned amount at your business (frequency).
The value of every new client you add = ($ x Y) / N
$ = the value of existing client base
Y = number of years the client remains with your business
N = number of clients.
This information gives you a better insight into the value of your existing client base and of new clients.
There are a few more questions the answers to which could help you focus your marketing actions for maximum results.
- What are your clients’ spending patterns? (These provide insight into which products and services sell the best.)
- How did clients hear of your product or service? (This enables you to determine which marketing elements work best, so you can make more use of them.)
- List your existing clients (also approach them to buy other products or services from you – make special offers available).
“If you are not serving a customer, your job is to be serving someone who is.”
Jon Carlson (Swedish businessman, CEO of SAS Group)
Article written by Jannie Rossouw, Head: Sanlam Business Market
Copyright © Sanlam, 2016