Customer value calculator

How to use it

1. 1Type your figures into the calculator. Nothing you type is uploaded or stored. The answer is worked out in your browser.
2. 2Read the result and its caption. The assumptions are shown on the screen beside the number.
3. 3Open the back office to keep your figures. There you see the same answer beside your other numbers.

What it does

• Every figure here is GROSS PROFIT, not takings: what is left after the cost of what you sold, before rent and wages. Takings would make the numbers bigger and useless.
• A regular’s monthly value is what one visit leaves behind, times how often they come.
• How long they keep coming is 12 divided by your annual churn. Lose a quarter of your regulars a year and the average one stays four years.
• The lifetime figure is capped at ten years. At 1% churn the formula says a century, which is arithmetically right and commercially nonsense.
• A customer who leaves part-way through the year did not cost a whole year of profit, so the yearly churn cost counts them as half a year.
• The last line is the one that matters: what keeping one in ten of the leavers is worth. That is the number a retention decision actually turns on.

Common questions

How do I calculate customer lifetime value for a small business?

Multiply the average sale by your gross margin to get what a visit is worth. Multiply that by visits a month, then by how many months an average customer keeps coming — which is 12 divided by the share you lose each year.

I do not know my churn rate.

Almost nobody does. Estimate: think of ten regulars from a year ago and count how many you still see. Even a rough answer changes the conclusion far less than you would expect, because the decision is usually about the first year.

Should I use revenue or profit?

Profit. A customer who spends $5,000 with you at a 20% margin is worth $1,000, and treating them as a $5,000 customer is how shops justify spending $2,000 to keep them.

Why is losing a customer cheaper than their annual value?

Because they do not all leave in January. Averaged across a year, a leaver costs you about half a year of their value, which is what this uses.

What is a normal churn rate for a cafe?

There is no published figure worth quoting for independent shops, and anyone giving you one is guessing. What matters is your own number this year against your own number last year.

Does a loyalty card reduce churn?

It gives a customer a reason to come back to you rather than the shop next door, and it gives you a way to notice when they stop. Whether it moves your number is something only your own figures can tell you, which is the honest answer.

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