How do you determine the true value of a new customer?

Want to really figure this out?  Then get ready to live with some amount of uncertainty and some amount of qualitative value, not just quantitative.

Lifetime Customer Value (LCV, or sometimes denoted as LTV or CLV) is complex, includes some hard-to-observe factors, and will include some info that only you have access to.

Obviously there’s the revenue from the initial sale, and if you’re doing a good job, there’s repeat business. The revenue aspects of LCV are easy to calculate in hindsight, but very challenging to predict ahead of time. Many factors come into play that ultimately determine your all-in LCV, including how well you connect with the customer, their culture, their business strategy, their growth, etc.

There are also several points of value that are very hard to quantify, but are quite valuable from an LCV perspective.  Additional value that should be captured includes:

1. Internal capability development
2. Google review
3. Testimonial
4. Case study
5. Backlink
6. Referral
7. Movement: to a new role, a new group, or a new company

So TrueLCV = InitialContractValue + RepeatBusiness + QualitativeFactors (and yes, I understand you can’t add qualitative factors to a quantitative equation…. that’s the point :)).

Let’s dive into the qualitative factors.

The value of internal capability development

There are ways in which you want your company to improve/grow. Whether it’s:

• learning a new design/simulation tool,
• developing domain expertise,
• or gaining experience in a particular industry vertical.

If this new customer gives your company the opportunity to grow in some way that’s of strategic value to the company, then this customer is worth more to you than the value that shows up as revenue.

The value of a Google Review

The value is from social proof when someone googles your company. The last thing you want when a potential customer is trying to validate you is to show up in their search results, only to find that no one has reviewed your company yet, or worse, they have, but the reviews are negative.

Assuming you get a positive review, the value of that review depends on how many Google reviews you’ve already got, and how recent those reviews are.  For example, if you’ve got hundreds of reviews already, the value for each additional review is pretty small, other than staying fresh with reviews.

If you’ve only got a handful of reviews on your site, each additional review for the first couple/few dozen reviews is worth a lot from a social proof perspective.

It’s a warm fuzzy that builds trust in aggregate.  How do you quantify this warm fuzzy?  Good luck.  Does that mean it’s not valuable? No. It just means it’s hard to quantify because feedback on the social proof isn’t readily available/observable.

The value of a testimonial

Testimonials also offer social proof and are similar too Google reviews. They’re great because they can easily be sprinkled in multiple locations on your site. Named (better) or anonymous (still useful), they’re valuable. They’re most valuable when there is industry vertical alignment between the testimonial and the potential customer, but role/title alignment is also valuable.

The great part about testimonials is that they really offer a lot of bang for the buck relative to the minimal effort involved in obtaining them.

The value of a case study

Case studies offer two levels of value, both in the form of proof points.

Level 1 value is achieved when you showcase a set of case studies on a particular topic that’s of interest to your customer. Let’s say you provide some type of shop floor solution for the automotive industry. You’ve got an industry-specific, application-specific page on your site. Showing that you’ve solved this problem over and over by showing several case studies offers an overarching proof point that you know what you’re doing.

Level 2 value is achieved when your case study tells a story that’s closely aligned with the situation that the potential customer is currently dealing with. Matching at this level can be challenging (a lot of alignment is needed, from motivation, to current state, and desired future state), but when it’s accomplished, a lot of trust is built via this one proof point.

Backlinks

Do you like being found by Google and other search engines? If not, then you can skip this section. If you do, then you’re going to care about backlinks. It’s worth noting that this is a somewhat controversial topic, and seems to be a slowly moving target, but for now, it’s a ranking factor. Backlinks are part of how Google understands how much they should trust you and how much authority you have within a particular set of topics.

A backlink is simply a link (with nuances) from your customer’s site to your site. Caution. There are right ways to go about this and there are wrong ways to go about this. What you want ideally is for your customer to be so excited about the work you’ve done for them that they want to share with the world that you helped them.

The amount of search engine ranking boost each backlink provides you depends on many factors.

• If (for a particular topic) you’re boosted from the second page of Google to a top 5 slot, you’ve gone from what essentially will round to no views (unless it’s some super high volume search topic, which it likely won’t be in your world), to some number of views greater than zero.
• If the backlink boosts you from a #2 spot to a #1 spot, you might at least double the number of visitors you get to consider you (see here for details on search engine position vs click-through rate https://moz.com/blog/google-organic-click-through-rates-in-2014 ).

Referral

I’m sure you’ve gotten more than one referral from an existing customer…. Right? If not, that’s something to analyze (reach out to chat about that). Referrals are an amazing way to get new customers! There’s a level of trust created that’s hard to compete with.

So, what’s the value of that referral from that new customer?  Well, the snowball continues to roll down the mountain and gain size…. You’ve got LCV from repeat business, google reviews, etc.

Customer movement to a new group, a new role, or a new company

People make professional moves quite often (e.g. see https://www.thebalancecareers.com/how-often-do-people-change-jobs-2060467), whether it’s to a different group, a new role within the company, or switch companies entirely.

If your new customer switches groups and you’ve done things right, you should be able to:

1. Maintain the current business you have with the group that the customer is leaving from. There should be an explicit handoff and you should have a backup contact.
2. Gain additional business by following the customer to their new group, role, or company (assuming they made a move that’s a good fit for you).

Don’t underestimate the value here. Be proactive. Make sure your customer-facing employees are being proactive.

Next steps

So where do you go from here? Two places:

1. Highlight which of these points of value you’re not paying attention to and take an hour to think about why. You don’t want to waste the investment you made to obtain the new customer.
2. Do something about the areas you’re not paying attention to the most. If you’d like help, reach out to discuss.