Lifetime Value of the Customer

Do you know your churn number? If you do, then you can estimate the lifetime value of your customer. (It's different for each service).

One thing about the LCV is that it demonstrates Customer Loyalty. If you have customers for 3 years at $50 per month, then the LCV is $50 times 36 or $1800. If your margins are 50%, that means you made $900 off that customer contract. It's a good number to know because if you are paying referral fees or sales commissions, it comes out of the $1800 somewhere. (Companies calculate Cost of Goods & Services Delivered separately than Cost of Sales sometimes).

Here's a good article on Calculating LCV. To that author, this calculation is so that you can determine "What Should You Spend to Acquire a Customer?" Customer Acquisition costs are important too.

In my case, if I go to a conference and sign up a client, then my customer acquisition cost is the cost of that conference (hotel, airfare, conference costs, food and beverage) - about $1500. I need to make $3000 from that customer to make it worth while.

No one enjoys doing these numbers, so make your CPA calculate it for you at least once so you have a baseline to figure out what products you make money on and what once you don't.

Update: Harvard Biz has a flash based calculator for Lifetime Customer Value here.