What the ‘Value of One’ Means to Your Business

As business owners, we are always looking for new and proven ways to bring in new customers. Yet, we don’t always take time to understand just how valuable each individual customer is to the long-term health of our business. Understanding the ‘Value-of-One’ (Customer), will show you how important it is to invest in getting and keeping more customers.

To determine what your advertising budget and ROI (Return on Investment) might be, you’ll first need to know the worth of an annual customer. To get this amount, answer the following questions:

1. What is your average sale (transaction amount)?

2. What is frequency of visits/purchases of an average customer? This calculation can be expressed in transactions or visits per week, month or year.

To determine the value of a new regular customer:
First, multiply the average frequency of visit by your average sale or transaction amount. For example, if a restaurant diner visits you once a week, with an average transaction of $10, the annual revenue value of that customer is $520. Subtract food costs of say 30%, that customer is worth $364 of gross profit, annually.

So, while driving traffic is important in the short-run for most businesses, keeping long term customers is where your advertising investments really pay off.  Understanding the ‘Value of One’ concept will show you how just few customers are needed to achieve a high return on your marketing investment!

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