> This is where the "lifetime value of a
> customer" idea comes in.

> Basically, you estimate how much average
> profit an average customer represents over
> the typical course of doing business with
> you. For example, if you know that the
> average customer makes you $2000 profit over
> the course of your business with them, then
> you can count backwards to determine how
> much you should spend to acquire that
> customer. Anything less than $2000 will put
> you in profitable territory. So, if it costs
> $100 to acquire an average customer, then
> you can expect an average of $1500 profit
> from each customer. However, you must also
> consider time: if the average term of doing
> business with you is, say, 3 years, well,
> you would probably need a larger volume of
> customers to keep afloat.

> Also, when thinking along these lines, its
> probably a good idea to leave a little
> margin for error, especially if you don't
> have a lot of data or if your data contains
> a lot of variance.

> Hope that helps.

> -Phil

> P.S. - This line of thinking helps explain
> why cold calling, especially the
> high-probability prospecting way, is so
> effective. If you are cold calling a local
> area, each call costs less than ten cents --
> much less than a postage stamp -- and then
> you only visit or send information to people
> who have stated that they want what you are
> offering. So you end up spending more on
> your most likely candidates and less on your
> least likely candidates (as it should be).

Obviously, the lifetime relationship between a vendor and a customer can vary from industry to industry. But a relatively consistent length of relationship is 3 years.

Once you've won that customer over, it's business suicide not to have another product (or two or ten) that you can sell them. Heck, the hard work is done by that point.

Take care,

Mike Winicki