Customer lifetime value calculator.
Buyers try a new supplier on one small part first, so this works out what a customer is worth over the whole relationship.
Your own figures
| Year | Still buying | Expected revenue | Expected gross profit |
|---|---|---|---|
| 1 | 100% | $46,000 | $13,800 |
| 2 | 80% | $33,600 | $10,080 |
| 3 | 64% | $26,880 | $8,064 |
| 4 | 51% | $21,504 | $6,451 |
| 5 | 41% | $17,203 | $5,161 |
| 6 | 33% | $13,763 | $4,129 |
| 7 | 26% | $11,010 | $3,303 |
The job that wins the account rarely pays for it
An industrial buyer moving to a new supplier starts with something small. They send one part, usually a straightforward one, in a quantity small enough that a failure costs them little. That trial order is the one your marketing usually gets measured against, and it is the least valuable order the relationship will ever produce.
If the trial goes well, a second part follows, then a family of parts, then work that used to go somewhere else. Customers stay with industrial suppliers for years because changing supplier means qualifying a new one, and that costs the buyer time they do not have.
Checking your own retention figure
Take the list of customers who ordered in the year before last, and count how many of them ordered again last year. That fraction is your retention rate. It is also the number on this page people most often guess too high, so it is worth counting even if you think you know it. If the answer surprises you, it is the most useful thing this calculator will tell you.
Questions owners ask about customer value
How do you calculate customer lifetime value for a manufacturer?
Take the first order, add the repeat orders in each following year, and reduce each year by the share of customers who stop buying, then multiply the total by your gross margin. On the starting figures here, a $18,000 first job becomes $169,960 of revenue and $50,988 of gross profit over seven years. That is 9.4 times the profit on the first order alone.
Why does this matter more for industrial companies than for most businesses?
It matters more because industrial relationships run for years and the first order is deliberately small. A buyer tries a supplier out on one part before moving anything important, so the job that wins the account is rarely the job that pays for it. If you judge your marketing against first orders, you will undervalue it, often by close to ten times.
What can I afford to spend to win a new customer?
A sensible ceiling is one year of gross profit from that customer, which on these starting figures is $13,800. Spending up to that amount pays the cost back inside twelve months, and everything after that is return. Some firms go further and spend up to a third of lifetime gross profit. That is more aggressive, and it only works when you are confident in your retention figure.
What retention rate should I use?
Use the share of customers who ordered from you two years ago and also ordered last year, worked out from your own records. Most industrial companies find a number between 75% and 90%, far higher than the consumer businesses most marketing advice is written for. It is the single biggest driver of the result on this page, so it is worth counting properly.
Should I include the customers who order once and disappear?
Yes, and the retention rate is where they show up. If a third of new customers never place a second order, your retention is nearer 65% than 85%, and the lifetime figure drops sharply. If that sounds like your shop, the best return is usually in what happens after the first order, before you spend more on winning new ones.
Does this account for growing accounts?
It does not, so the result is on the cautious side. Industrial accounts often grow as the buyer moves more parts across once a supplier proves itself, and a flat repeat order value understates most real relationships. If your accounts reliably grow, raise the repeat order value to reflect it, and leave the number of years as it is.
Who made it, and what it does not do
This tool was written by Shopfloor Agency's lead engineer, who holds a bachelor’s degree in mechanical engineering and builds websites for US manufacturers. It runs entirely in your browser.
The arithmetic is exact. It applies the same retention rate and the same repeat order value every year, which understates accounts that grow and overstates ones that shrink. It does not discount future cash to present value, which over seven years at ordinary rates would reduce the figure by roughly a fifth. The retention rate moves the answer most and is the one most often guessed, so work it out from your own order history before you rely on the result.
If you spot an error, tell us, and we will correct the page and note the change.
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