[corin_]

"A single, lifelong customer who lives his life spending the way you want him to is worth six or seven figures. A single one."

Let's say that "lifelong customer" spans 47 years (aged 18-65). In order for him to spend seven figures s/he would have to spend $1750/month. And, depending on what they're paying for, a lot of that won't be profit...

So not sure why it's worded as if everyone should realise that a single life-long customer is worth a huge amount, chances are, for most companies/people, they won't be.

[jat850]

I don't fully agree with your math. Mine is potentially no better, but:

A single customer, spending $500/year on whatever it is you do, wherein you make 5% compounding profit off of their $500/year, nets $100,000 in 45 years. I feel that's a bit more realistic of an approach.

[corin_]

I wasn't taking interest into account in my example.

5% profit of $500/year is $25/year. I'm too lazy to work out compound interest over 45 years considering that a new $25 is being added each year, however:

45 * $25 = $1125

If you invested $1125 for 45 years at an interest rate of 4%, you'd end up with $6571. (And investing $1125 over 45 years gets you more back than only adding $25 a year to the investment.)

Obviously it's possible to do better than 4%, but I would suggest that, then, however you are investing the money is "how you are making money", not "having a lifelong customer".

So, have I completely misunderstood your example, or was your maths way way off?

[martinkallstrom]

His math is not off, I get about the same using http://www.moneychimp.com/calculator/compound_interest_calcu...

When he said 5% profit he meant 5% interest. Result depends on the figures you put in, but if you can get people to spend hundreds of dollars on your business every year of their life, you are probably in possession of a mechanism providing interest well over 12% or 15% annually. Which makes the value per customer much higher.

IKEA is one of the companies that successfully transformed the culture of one or several nations to their own benefit and routinely creates lifetime customers from infant to the grave.

[corin_]

Ah, assuming a profit of $500 does make the maths make sense.

But $500 profit a year from a single customer is way above the average for the majority of businesses.

[martinkallstrom]

So it follows that the majority of businesses does not make trillions of dollars either. :)

Still, there are several businesses that are making on average over $100-500/year profits on me. More or less my bank, car maker, gas station, energy company, furniture store, favorite soda brand, supermarket, fast food chain... what else? Scary thought.

[hessenwolf]

Your bank might not be. They are often just acting as a middle man and lending money to you that they borrowed from the bond market, taking the spread as their admin expenses.

[jat850]

I think my math was right (unless my compound interest calculator was wrong) but I did make a typo - the investment would have to be $600 per year at 5% compounding interest, not $500. Sorry 'bout that.

[ricaurte]

He would have had to assume a 15% rate of return in order to yield $100,000.

[shawndrost]

By that logic, a customer whose NPV is $100 is "worth" $13150.

[joe_the_user]

I think the article is correct but phrases the lifelong customer part wrong.

The habits of a single life-long customer divorced from everyone else whose spending is absorbed by a single player might not be worth a million - EDIT: maybe 50k with interest (being very generous).

BUT if a small player has "in hand" said habits, they could be worth much more sold to the larger players. The larger players can direct the consumption of this consumer to convincing counterfeit items (margarine instead of butter, Budweiser instead of a decent beer, etc). This gives them much higher profit margin. These larger players can also us the single consumer's habits as a model for ten other people's habits.

And naturally it feels nasty discussing things this way...

So I think the "amortized" control of single consumer's habits might conceivably be worth about a million.

[AnthonBerg]

Wow, well put. There is of course no Intention of The Man to ingeniously swap margarine in for butter, but the gravity of profit margins will tend to pull reality that way. It usually does.

[lsc]

I'd bet you five bucks that whole foods has better margin on it's "whole" butter than the safeway where I shop has on it's cheap off-brand margarine.

[joe_the_user]

But that doesn't change the overall situation.

First you bought butter whose "realness" and "wholeness" wasn't in question and didn't cost extra. Then you bought margarine that "better" and cheaper. Only then you realize that you were being sold a unhealthy (trans-fat-filled) fake. So you people went and bought yet another product, "whole", "real" butter!

As far as margins go, they're being chased down by competition, which exactly there always needs to be new products, as above.

[lsc]

>As far as margins go, they're being chased down by competition, which exactly there always needs to be new products, as above.

This implies that there are usually competitors willing to accept a lower margin for a largely similar product; in food, I'd compare Trader Joe's to Whole Foods in this role.

Really, this (producing a largely similar product at lower margin and lower price) is the tactic I'm attempting to use, as well. The margins most large companies have, once you account for their economies of scale advantages, must be staggering, (that, or the inefficiencies inherent to being a large company where the people who make the decisions have no contact with the people who own the company are staggering.) which means there's plenty of room for the generics to have a go at bringing prices down.

[viggity]

you missed the whole point of this article, he wasn't talking about actually starting a single company that is going to make trillions of dollars. He was talking about the system and culture in which we live

[corin_]

I'm not arguing with the entire article, I'm arguing with a mathematic statement he made within it.