What is Customer Equity? Definition, How to Calculate It and How to Increase It

Customer equity is the true value of your relationship with your customers. And though it might seem odd, it is something your business can calculate. And while it might be odd to think about putting a real number on the value of each for your customers, it’s an important step to make data-driven financial decisions for your company’s benefit.

Defining the Meaning of Customer Equity

Customer equity is an estimation—it is the value of your customer relationship over a preset period of time. For example, you may decide to look at the value of your customers over the previous year compared to two years prior. This process lets you see if customer value is increasing or decreasing, which also reflects how well your business is doing among the customer population.

Customer Equity’s Importance for Your Business

Customer equity is a necessary value to look at because it indicates a couple of things. First, it shows the value of each customer over time, including how much they spend on your brand’s products or services. Second, knowing the value of each customer can help you show the true value of your business over time, which is necessary if you want to take your brand public and begin selling shares.

Customer Equity: It Isn’t Brand Equity

Now that you understand customer equity, remember to think about brand equity as well. These are two different things, but both can be helpful as you work to improve the value of your business.

Definition of Customer Equity

Customer equity is straightforward. It’s how much your customer is worth over their entire lifetime with your brand. It is the lifetime value of all the customers a business has combined, allowing the business to know approximately how much the customer base is worth to assess potential revenue, stock value, and so on.

Definition of Brand Equity

Brand equity refers to the strength and value of a brand. Brand equity gives you an idea of how much your brand is valued for and how much you could get for it if it sold. Generally, brand equity is looked at as the overall value of a branded product compared to a generic version of that item or service.

Key Differences Between Brand and Customer Equity

Brand and customer equity are not the same, even though the two do have things in common, such as the value of customer loyalty to a brand or the stress of increasing customer spend.

It’s important to understand the variances between brand and customer equity, since they each have a different emphasis. For example, brand equity looks at the strategic issues of managing brands, whereas customer equity looks at marketing, customer relationships, and how they affect revenue.

Calculating Customer Equity for Your Brand

To calculate customer equity, take these factors into account.

Viral Coefficient

A viral coefficient looks into how often your customers send you referrals. It’s a way of looking at customer acquisition and the present value of customer loyalty to your brand.

Use this formula for your viral coefficient:

Customer equity is equal to: Viral coefficient x LTV – (Acquisition + Retention).

LTV, or Customer Lifetime Value

Customer lifetime value, or LTV, measures how much a customer is worth from the beginning to the end of their time with your brand. Some factors you’ll want to consider to get the LTV include the average value of a purchase, how often purchases are made, and how long customers stay loyal to your brand.

Acquisition Retention

Finally, look at acquisition and retention. Acquisition includes the expenses and strategies you use to get a new customer. The goal is to have your acquisition cost be less than the value of the customer if you want to make revenue. Retention refers to keeping customers, as it is generally less expensive to keep a customer than to acquire a new one. High retention rates are good for LTV.

4 Strategies To Increase Customer Equity

Increasing customer equity is an excellent marketing investment that will help you improve your brand’s bottom line. Building better customer equity helps you retain more customers. Doing this gives them a higher lifetime value, which can improve your chances of growing your business. Here are some ways to improve customer equity:

Offer Only High-Quality Services and Products

It is necessary to create high-quality products and services to make the most out of the customer relationships you have today. Customer retention comes more easily when you have services or products that meet or exceed expectations.

To improve your products or services, think about what your customers come to your brand for. Ask for feedback, and be willing to implement it to improve product and service quality.

Offer Stellar Customer Service

One thing that can keep customers coming back for more is excellent customer service. As you consider what you can do to improve customer loyalty, focus on stellar customer support processes. You need to show customers that you value your relationship with them to improve retention. If customers struggle to return products or get no support when they need it, they are more likely to turn to a different brand that is willing to provide quality customer service experiences.

Attack Customer Pain Points

Customer pain points are the reasons customers come to you for your products and services. They need what you have to offer to resolve their issues, and you should do everything in your power to reduce the barriers to obtaining those solutions.

Customer pain points can also include the points of friction along the customer journey. For profitability and long-term retention, it is key to ensure any issues customers run into along the customer journey are resolved and that you make sure the same issues don’t impact the customer again. If you are proactive, you’ll reduce churn and improve your customer retention rate.

Personalize Customer Experiences

Every customer has a unique experience with your business, and that’s how it should be. Building a unique, personalized experience is what customers want as well, with 80% saying they’re more likely to buy when brands create personalized marketing and interactions that speak to them rather than a larger audience. Consider using a data-driven strategy and tools such as a customer service management platform to ensure your customers are treated as the individuals they are. When you do, you’ll improve customer lifetime value (LTV) by encouraging better customer retention and improved customer experiences.

Make Sure Customers Can Share Your Product or Service Easily

Finally, make more sales and improve customer acquisition by ensuring your products and services are easy to share online. Make it easy for your customer base to recommend you to others through post-transaction outreach, social media campaigns, and surveys. And, when customers do refer others to you, consider offering loyalty programs or referral perks to encourage them to continue speaking positively about your brand to others.

Increase Customer Equity With Podium’s AI Employee

Podium’s AI Employee can increase customer equity and help you improve your brand value through excellent reviews and feedback. With Podium’s AI Employee, you have an extra employee that can respond to customers 24/7, respond to inquiries, and provide better customer service around the clock. From scheduling visits to your shop to answering customers’ questions without delays, Podium’s AI Employee is there to improve the customer experience. To learn more about how Podium’s AI Employee can improve customer equity, watch a demo.