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Lifetime-customer value (LCV) is the sum of all future-customer revenue streams minus the costs of developing and producing the product or service offering, the costs of acquiring new customers (advertising, selling, setting up accounts, and the customer learning process), and the costs of remarketing to or retention of current customers (including ongoing servicing and communication). 

A simplified way of calculating LCV is to use the average profit of an offering as a substitute for the combination of future-customer revenue streams minus all of the above-noted costs.  Average profit can be used a rough substitute for this information because, like LCV, it is determined by subtracting costs from sales revenue.  The simplified formula for LCV is therefore:

=    the potential lifetime-customer value of that customer.  

LCV can be calculated in broad terms, i.e. for the average customer, or it can be calculated for specific groups of customers.  When it is calculated for specific groups of customers, it can be used to help determine which groups a company should place its marketing efforts on.

Calculate the following based on the LCV formula provided above.

If the average man buys 50 good quality suits during his lifetime, and the average profit on a typical good quality suit is $125, what is the potential LCV of an average male customer to a suit retailer like Moore’s?

If the average purchaser of fast food hamburgers buys 500 burgers in his lifetime (i.e. an average of 10 burgers a year over 50 years) from a fast food chain, and the average profit on each burger sold is 50 cents, what is the potential LCV of an average burger customer to McDonald’s?

If a loyal McDonald’s customer typically buys one hamburger a week from the time he is 15 years old until he is 75, and the average profit on each hamburger sold is 50 cents, what is the potential LCV of a loyal customer to McDonald’s?

For McDonald’s, how much greater is the LCV of a loyal customer than the LCV of an average purchaser of fast food hamburgers?

If the average customer buys 20 large floral arrangements from a professional florist during his or her lifetime, and the average profit on a typical large floral arrangement is $30, what is the potential LCV of an average customer to a professional florist?

If high income women typically buy 60 floral arrangements from a professional florist during their lifetimes, and the average profit on a typical large floral arrangement is $30, what is the potential LCV of a high income female customer to a professional florist?

If (a) a person who operates his own small business typically buys 8 large floral arrangements from a professional florist each year as client gifts, (b) we assume that the typical small business is in operation for 10 years, and (c) the average profit on a typical large floral arrangement is $30, what is the potential LCV of the average small business customer to a professional florist?

For a professional florist, how much greater is the LCV of a typical small businessperson than the LCV of the average customer?

For a professional florist, how much greater is the LCV of a typical small businessperson than the LCV of a high income female customer?

Should the florist place her marketing efforts on high income women or small businesses?