Calculate the value of existing and new clients

Article written by Jannie Rossouw, Head: Sanlam Business Market

There are basically three ways in which to grow a business, namely:

  1. by getting new clients;
  2. increasing the share of wallet, and
  3. 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)

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