A Customer’s Life Time Value
Once upon a time a salesman telephoned a parking ramp manager. He believed the ramp overcharged him and wanted a refund. The two couldn’t agree on how to resolve the dispute. The salesman wanted a $4 refund, but the ramp manager would only offer $2.
Realizing this amount of money was too small to justify the time and energy he already had spent on the phone, the salesman closed the conversation by telling the manager, “It’s going to take $4 to satisfy me, but the decision is yours. I’ll look for your check in the mail.” A week later, a $2 check arrived.
Either the ramp manager never wanted to see or hear from this salesman again for making such a big deal over a couple of bucks, or he didn’t understand the concept of life time value (LTV).
LTV is the amount a customer could potentially spend with you over the course of a normal life. Imagine this salesman parking in this ramp five times a month at $5 a shot for the next 20 years until retirement. The salesman’s potential LTV to the parking ramp is $6,000. Unfortunately for the parking ramp owner, the manager sent $6,000 to his competitor’s ramp to save $2. How might knowing the LTV for each of your customers impact the $2 decisions you make on a daily basis?
