Financial Value of Customer Satisfaction: Using a Lifetime Value Calculator
This online calculator can easily be used for an in-class demonstration of the value customer satisfaction and retention brings to a company. The activity should take about 10 minutes, and provides a nice, interactive demonstration of the lifetime value of a customer to a company. The online calculator uses the value and frequency of purchase, annual purchase rate, and referral information to calculate the lifetime value of a customer's purchasing power. This is a quick and easy way to demonstrate the value that customer loyalty and continued patronage can provide a company.
Additionally, students can see in a visual demonstration how long-term customer loyalty can provide financial revenue to a company.
Context for Use
Description and Teaching Materials
After discussing the importance of customer retention, I like to take 5-10 minutes for this activity. I ask the students to jot down a list of four or five items they have purchased in the past week or so, and to include the approximate price they paid, in full dollars. I will jog their memory by mentioning say a nice meal they may have had over the weekend, or their "regular" daily cup of coffee, or can of soda, or perhaps their weekly grocery purchase. Then have them indicate how frequently they make each purchase—daily, weekly, etc. Now, calculate how many purchases they make on average per year.
Unless you have a large lecture class of 100 or more students, you can easily query the class, and get a variety of purchases to input into the online calculator. Thus, students can see the value of that daily Starbuck's coffee customer, and the weekly grocery purchase over a lifetime. I find students often are amazed at the value of their purchases over a lifetime.
Teaching Notes and Tips
- What do you think might happen if you increased the number of referrals a customer would make?
- What might happen if you could convert twice as many referrals?
- Would you now think a customer retention program might be a profitable investment?