How Much Cash is a Customer Worth?

On occasion, I have asked retailers “what’s your most valuable asset?” Answers range from “my location” to “my dedicated staff.” I would beg to differ with these dealers, for in my estimation the most valued asset of any retailer is their customer base. It’s simple, no customers . . . no business. 

On the retailers’ balance sheet there is no asset listed as “customers.” Yet on the P&L statement, the top line is sales which only comes from consumers. If the consumers don’t buy, the business fails. And ironically, the customer base is quite fragile and perishable.

And yet, all kinds of retailers perpetually are doing or not doing things that serve to erode consumer loyalty. And in many cases, stores do things that permanently drive the customers away. It would seem that all too often, retailers have blinders on when it comes to “the value” of their own customers.

Just how are we driving our customers away? The primary reasons customers leave are staff indifference, uncompetitive prices, failure to match competitors prices, poor return policies, lack of product selection, failure to resolve consumer complaints, stock outs on advertised products and viewing the consumers as a commodity rather than a treasured asset.

And the most aggravating retail transgression of all is the failure of the merchant to address any consumer complaint stating “It is our policy . . .” as a reason to not accommodate the consumer. The store’s policy is most likely in direction conflict with the customers’ policy of dealing only with retailers who are willing to satisfy a consumer’s problem regardless of where the fault lies. 

One’s appreciation of the customer is heightened once you estimate the dollar value of each consumer over the average lifetime of your consumers. Have you estimated the lifetime value of a customer? Are they each worth $3,000, $10,000, $25,000, $50,000 or higher?

Begin by determining the total customers you have. Don’t have that number then shame on you. Start by counting the names on your email list or any other customer list.

Next build several theoretical customer purchasing profiles. For example, if you assume a customer who is age 30 might be a customer for 30 years. If this customer buys at least $1,000 per year on average, that’s $30,000 of purchases during any given 30 year period. 

If you lose 50 customers per year over a 30 year period, that amount of lost sales equates to $1,500,000 (1,000 X 30=30,000 X 50=$1,500,000). And if you lose an average of 75 customers a year, your lose grows to $2,250,000.

The loss of reputation can escalate your profit losses exponentially. Thus, the downside risk of ignoring the consumer is huge. Conversely, the potential upside gain for treating the customer as your most valuable asset is vast.

Don’t believe the numbers? Develop several scenarios based upon your own sales and consumer records.

What’s a customer worth? A real pot of gold. it is much cheaper to keep an existing customer versus trying to gain a new customer. Remember, the most effective way to ring the register is to keep your customers returning again and again!