How to Work Out What a Customer Is Really Worth to Your Business

Ask most trades what they can afford to spend to win a new customer and you get a shrug, or a number they've plucked out of thin air. It drives me a bit mad, because it's the single most useful figure in the whole business and hardly anyone's sat down and worked it out.

It takes about ten minutes and the back of an envelope. Here's how I do it with people.

Start with profit, not the invoice

The number you're after isn't what the job bills at. It's what's left once you've paid for the materials, the labour and your own time.

Say a boiler service invoices at £120. Knock off £20 for parts and bits, and an hour and a half of your time at, let's say, £40 an hour. You're left with roughly £40. That £40 is what we build on — not the £120. Get this wrong at the start and every number after it is wrong too.

Now add the repeat work, because this is where everyone under-counts

Almost nobody's worth just one job to you. That boiler service customer comes back next year, and the year after. If they stick with you four years, they're not a £40 customer, they're a £160 one. And if one in three of them eventually has you do a repair or a full swap, the number climbs again.

Two questions to ask yourself, and you don't need perfect records — a sensible guess beats no guess by a mile:

• How many times does a typical customer use you before they drift off?
• What proportion go on to something bigger?

Don't forget the ones they send you

If a happy customer points one mate your way every couple of years, that mate's worth roughly the same again and they cost you nothing to win. Be cautious with this number if you like, but putting it at zero is just wrong.

A quick one, start to finish

Take a sparky doing mostly domestic work. Average profit per job, ninety quid. Average of three jobs before a customer moves on. One in four sends a referral, which adds about a quarter on top.

So: £90 times 3 is £270, plus 25% gets you to somewhere around £340 a customer. That's the number. Everything else in your marketing flows out of it.

What changes once you know it

A few arguments just end. You suddenly know what you can afford to pay for a lead — if you're comfortable spending a third of a customer's value to win them, that's about £110 a customer and you're still miles ahead. All of a sudden a £45 lead doesn't look expensive, it looks cheap.

You can also judge an agency properly. "We got you twelve enquiries" means nothing. "We got you twelve enquiries at £38 each and you close about half" is a conversation about actual profit. And you can see which jobs deserve the ad budget — if bathrooms are worth six times a call-out, that's where the money goes, even though the clicks cost more.

The one mistake I see over and over

Don't do this maths on your best-ever customer. Use a normal one. The whole point is to make decisions you can lean on, and being optimistic here just leads to overspending. Equally, don't use your worst — if you only count the one-off emergency who never rings again, you'll talk yourself out of advertising altogether and quietly switch everything off.

Once you've got the figure, the next question is what a lead should actually cost, and why the cheapest ones usually aren't — which I get into in why cheap leads are usually expensive.

Want a hand working yours out? It's the first thing we do on a call, and it's free. Get in touch and we'll run through your numbers, whether or not you end up working with us.