Advice You - Business

Calculating Lifetime Customer Value

In my last article, I explained why it is important to focus on customer retention and left you with the formula for Li

According to USFDA, a combination product is one composed of any combination of a drug and device; biological product and device; drug and biological product

fetime Customer Value(LCV). I will now walk you through an example so that you can calculate your own LCV.

You will recall that LCV is the value of a customer to your compa

; or drug, device, and biological product and fixed dose combination would include two or more combinations of drug.

Examples of combination products may in

y. It is a measure of how much profit the customer will bring to you over the life of the relationship that you have with that customer.

LCV = (sales per customer) x (estim

lude drug-coated devices, drugs packaged with delivery devices in medical kits, and drugs and devices packaged separately but intended to be used together.

ted number of times the customer will reorder) x (number of referrals) x (percentage of referrals that become customers) – (cost of sales)

sales per customer =

here is enormous increase in the number of combination products entering the market in the recent years. Combination products have proven advantages but fixe

stimated average sale by customer estimated number of times the customer will reorder = customer lifetime number of referrals made = estimated number of referrals the cust

d dose combinations are still in the process of convincing regulatory authority on their advantages over the single ingredient formulations.

Combination pro

omer will make cost of sales = cost of goods x customer lifetime Just how much is that customer worth? Let’s put some numbers around this.

ucts have become life saving products for the pharmaceutical companies who doesn’t have many innovative molecules in their product pipeline and have been inc

elow is some hypothetical data from an online clothing store that sells trendy jeans, belts and accessories like rings, bracelets, earrings and necklaces.

annua

easingly used in the product life cycle management. Even the companies having product patents are trying to extend their product life cycle through the combi

sales per customer = $300 customer lifetime = 3 years number of referrals made = 10 percentage of referrals that become customers = 15% cost of sales = $180 x 3 years =

nation products and maximize the revenues. But the companies involved in this practice are overlooking that they are burdening the patients both economically

$540

($300 x 3 x 10 x 0.15)-($189 x 3) = $1350 - $540 or $810 gross profit per customer This means that the LCV is $810. By upselling and cross-selling, you

and physically. They need to rightly judge the benefits of the combination products and they have to even look at the risks involved when combining the produ

can make much more profit from your existing customer.

What if you don’t have the data to calculate the LCV? Don’t worry, you can easily start with some guesstimates and r

ts. Some of the combination products were well accepted by physicians while others suffered. Companies involved in development of combination products are fi

fine them as you collect more data.

Calculate your LCV in 5 Easy Steps:

Take your total sales and divide it buy the total number of customers that

ding difficulty in defining their combination products and facing various challenges from selecting a combination to marketing it.

Following aspects would a

you’ve sold to in a given period. This is your sales per customer.

How many times do you think the customer will reorder a particular product or service?

dd to the challenges in developing combination products:

Which markets to tap where the combination products can do fairly well?
Which combination prod

his is the customer lifetime.

The old adage "A satisfied customer tells no one. A dissatisfied customer tells 10 of his friends." is old for a reason. Tod

cts are meaningful and rational?
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin

ay, a satisfied customer can make a casual reference on her blog or post a comment in a forum about the wonderful shopping experience that you provided. That comment could b

tions increase the patient compliance?
What would be the developing cost?
How to tackle the risks encountered during combination product developmen

read by thousands of people! You can make a conservative estimate as to how many people will hear about you through your customer. This is the number of referrals made

t?

As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel

/em>. You can start asking new customers how they heard about you.

As much as we’d like to think that everyone that comes to us will buy something, not every refer

ping new procedures for reviewing their safety, efficacy and quality.

Professional from academic institutions, pharmaceutical industries, health care indust

al will result in a sale. Guesstimate the percentage that will buy. This is the percentage of referrals that become customers.

Finally, take your total co

y and representatives from various regulatory agencies are working out to design the regulatory requirements for manufacture and sale of combination products

st of goods (or services) and divide it buy the total number of customers that you’ve sold to in a given period. Multiply this by the customer lifetime you calculated earlie

.

As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de

. This is the cost of sales. If you are listening to your customer and are truly there to help, you will discover many opportunities to increase sales. A

elopment. They need to be wiser in analyzing the market trends and the regulatory requirements.

Companies that provide selfless information through particip

your customer goes from a single purchase to a loyal, lifetime customer, your investment in initially acquiring that customer gets recouped.

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tion in industry events and feedback to regulatory authorities would be able to face the challenges and will be successful in developing combination products

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Advice You - Calculating Lifetime Customer Value in 5 Easy Steps

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