Fun with stats - what makes a great customer?

We were slow tonight, so I decided to do some data analysis on my customers.

I track customers using their Lifetime Value (LTV) since that’s what really matters… how much will the customer make me over the course of their lifetime. I calculate this using the customer’s average gross margin per order, their frequency and how much their discount usage costs me.

I did a regression analysis using those factors against their LTV to find out which factor is most important.

What do you think it was?

Frequency won by a LONG SHOT. I expected it to be the most important factor, but not by as much as it is. The customer’s frequency explains 78% of my customer’s LTV! Discounts used only came in at 3%, and average ticket was 8%.

For every 10% in discounts given (as a percentage of sales price) I lose about $20.20 in LTV, but for every 0.1 additional orders per month I gain $75.10.

Interesting insights are sometimes gained from being slow.

I hated statistics in college but wish that I had put more effort into those classes now that I am a business owner. I would have also expected frequency to be most inportant, but like you, I would not have expected that it was that much of a factor…Great infotmation and thanks for sharing.