Customer Lifetime Value

Your investment to acquire a new enrollment, like any investment, should be less than the value the enrollment will return to your child care business. The Customer Lifetime Value or Lifetime Value is one of the most important Key Performance Indicators you can measure in your child care business. The Lifetime Value estimates the future value of a typical customer (new enrollment) over an average enrollment (number of months or years) period. Put another way, the total amount of tuition or net profit you can expect to receive from a new enrollment over the entire time the child is enrolled in your child care business.

The customer lifetime value (LTV) must account for the customer acquisition costs (CAC), ongoing marketing expenses, operating expenses, and all other costs involved in providing child care services.

Many child care business owners overlook the importance of the customer lifetime value and focus only on the immediate marketing and sales campaign. Of course, it is important to have ongoing marketing efforts designed to generate new parent leads and enrollment.  However, optimizing the lifetime value of existing customers is essential to maintaining full enrollment and a desirable level of net profit. Even a small increase in customer retention rates of 5% can have a substantial impact on the child care business net profits.

How to Calculate Customer Lifetime Value

There are two ways to calculate customer lifetime value – a simple method and a more advanced one. The simple method is sufficient for child care businesses.

Simple Method

Annual profit contribution per customer X Average number of years they are a customer – Less the initial cost of customer acquisition