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Hi Paul,

What i take away from Jay and lifetime value is drawing a real clear distinction between an ad budget that is a percent of sales vs allowable cost/lifetime value.

On of them is a guess, and one of them is an investment that you can track.

Your competitors might have an ad budget as a percent of sales of 20%. It might come out to $1 or $2 a customer.

But if you use allowable cost, the customer could be worth $15 or $30. You could spend much more than $1 or $2 to get a customer (with bonuses, rebates, free month at the gym, etc).

Or give away your product at a loss or breakeven when your competitors charge full price.

Hi John
Thanks for your comments.

I believe that the marginal net worth is an essential concept for understanding sales and marketing.

But it saddens me that so few people measure their marketing.

Marginal Net Worth is such an important concept to consider in your marketing.

Other blogs you may be interested to read include

How to Determine the Marginal Net Worth or Lifetime Value of a Customer

http://www.authorsden.com/visit/viewarticle.asp?AuthorID=588&id=940

Marginal Net Worth

http://www.mentorplus.com/Blog/tabid/852/PostID/10/Default.aspx

It saddens me that this has not been an area covered in the accounting and finance training. I don't even remember Marginal Net Worth from my MBA studies but it is a critical number for successful marketing.

Customer lifetime value is a more popular term for this concept than marginal net worth although as I explain above, there is a small difference in terms of whether you deduct your marketing costs.

Here is more information on customer lifetime value if you want it

Customer lifetime value - at Wikipedia

http://en.wikipedia.org/wiki/Customer_lifetime_value

Customer lifetime value calculator
(from the Harvard Business School)

http://hbsp.harvard.edu/multimedia/flashtools/cltv/index.html

Modelling Customer Lifetime Value

A pdf but it may be too technical for many - including me

http://www.marketsharepartners.com/media/whitepapers/JSR2006.pdf

Calculating Customer Lifetime Value

http://www.jimnovo.com/LTV.htm

Lifetime value is an important concept. Think about it this way- if you only extended the life of half of your customers only 10%, you would add significant profits to your bottom line.

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