Example: a packaging distributor in inland São Paulo has two customers that look similar on paper. A food manufacturer places a large order twice a year. A chain of bakeries places smaller orders every month. When deciding where to put the sales effort, the owner looks at order size and picks the manufacturer. The math of B2B customer value over time may show the opposite. Before you start, confirm the margin on each product with the Pricing Calculator: without the right margin, the rest of the math comes out wrong.
This guide is the other side of a calculation you may already know. The article on how much it costs to win a B2B customer shows what it takes to bring in a new client. Here, the question is how much that client gives back while buying from you, and what to do with the answer.
What customer value over time means
Customer value over time is the margin a client leaves in your company during the whole period they buy from you. It is often called LTV, short for lifetime value. Note the word margin: it is not revenue. A client who buys a lot at a thin margin can be worth less than one who buys little at a healthy margin.
When you sell to companies, this measure matters more than in consumer sales. A B2B client usually buys again, sometimes for years, and each repeat order costs far less than the first sale. The first orders often just pay back the acquisition cost. The ones after that build the value.
It is also not an exact forecast. It is an estimate that helps you compare clients, channels and decisions. Being a little off on the number is acceptable. Deciding with no number at all is what gets expensive.
The four parts of the math
The math has four parts. Each one can be estimated with data you already have: your sales system, the invoices you issued or a spreadsheet of orders.
Average order value
This is how much the client spends, on average, per order. Add up the value of a client's orders over a period and divide by the number of orders in that same period.
Contribution margin
This is what is left from each sale after the costs that only exist because the sale happened: goods or raw material, sales taxes, commission, freight and payment fees. The guide on how to calculate your selling price explains the difference between markup and margin, which often confuses this part of the math.
Purchase frequency
This is how many times a year the client buys. For a monthly contract, the answer is simple. For clients who buy on demand, look at the history of the last two years, not only the last quarter, which may have been unusual.
Relationship length
This is how long, on average, a client keeps buying from you. If you have history, check how many years older clients stayed before they stopped. If you do not, use a conservative period and review it when the data comes in.
With the four parts, the math looks like this:
Customer value over time = average order value × margin × purchases per year × years of relationship
An illustrative example
The figures below are illustrative and rounded, from a fictional distributor we will call Example Packaging, in Brazilian reais (R$). They are not a market average or a benchmark for your sector. The contribution margin is the same in both cases, 30%, to isolate the effect of frequency and relationship length.
| Part of the math | Client A: large, rare order | Client B: smaller, frequent order |
|---|---|---|
| Average order value | R$ 6,000 | R$ 1,500 |
| Contribution margin (30%) | R$ 1,800 per order | R$ 450 per order |
| Purchases per year | 2 | 12 |
| Margin per year | R$ 3,600 | R$ 5,400 |
| Relationship length | 2 years | 4 years |
| Value over time | R$ 7,200 | R$ 21,600 |
Client A's order is four times larger, but client B is worth three times more over time. Two things explain the gap: B buys more often and stays longer. It makes sense: whoever uses your product in their daily operation, such as packaging, supplies or maintenance, tends to reorder without opening a new negotiation every time.
The example also shows the risk of looking only at order size. If Example Packaging offers discounts to win more clients like A and treats B as a small account, it may be investing in exactly the profile that gives back the least.
How it relates to acquisition cost
Customer value alone does not tell you whether a client is worth winning. It has to be compared with the customer acquisition cost, or CAC. Suppose, still in the illustrative example, that winning either client costs R$ 3,000, adding up ads, materials and the owner's time.
- Client A: leaves R$ 7,200 for a cost of R$ 3,000. There is margin left, but little room if the client stops buying before the two years.
- Client B: leaves R$ 21,600 for the same cost. Even if the client stays half the estimated time, the math still works.
Payback time counts too
Besides the ratio between value and cost, look at how long the margin takes to pay for acquisition. Client A leaves, on average, R$ 300 of margin per month (the R$ 3,600 for the year divided by twelve). The R$ 3,000 cost comes back in ten months. Client B leaves R$ 450 per month and pays the same cost back in less than seven months. For a small company, that period matters, because the money spent on acquisition leaves your cash before the margin comes in.
There is no single right ratio between value and cost that fits every company. What works is your own math: value well above cost, with payback in a period your cash flow can handle.
What raises a client's value
Each part of the math is a lever. Moving any of them changes the result, and some cost far less than winning a new client.
- Relationship length: on-time delivery, support that answers and a regular check-in to see how the product is being used. Every extra year of relationship adds value with no new acquisition cost.
- Frequency: restocking reminders, scheduled supply agreements and better terms for recurring orders.
- Order value: offering an item that complements what the client already buys, without pushing what they do not need.
- Margin: reviewing discounts granted at the start of the relationship and never revisited, and checking whether freight and commission still fit in the price.
Where to invest
With the value of each client profile in hand, the investment decision gets clearer. Three questions help you decide:
- Which client profile is worth more? Group your clients by sector, size or type of use and calculate the average value of each group. The group that gives back the most deserves the most prospecting effort.
- Which channel brings that profile? Check where the clients in the most valuable group came from: referrals, trade fairs, outbound prospecting, business rounds. The Cost per Meeting Calculator compares the cost of a conversation in each channel, counting your time.
- How much can you spend? If a client in that group is worth R$ 21,600, as in the example, you can invest more to win it than to win a client worth R$ 7,200.
Relationship channels enter this comparison with a point in their favor: conversations with people who already know you, or who have stated they are looking for what you offer, can bring clients with a better fit, who stay longer. To know whether that holds in your case, measure it. The guide on how to measure the return on networking shows how to record where each client came from and how much they generated. If you want to include business rounds in the comparison, see how a business round works.
Common mistakes in the math
- Using revenue instead of margin: it inflates the value and leads you to spend more than the client gives back.
- Calculating one average for all clients: it hides exactly the difference between client A and client B.
- Guessing a long relationship length: without history, use a short period. It is better to be pleasantly surprised than to count on margin that never arrives.
- Forgetting the cost of serving: a client who asks for rush delivery, long payment terms and a lot of support may have a real margin below the one in the table.
Where to start
Pick ten active clients, mixing those who buy a lot at once with those who buy a little and often. For each one, write down the average order value, the margin, the purchases per year and how long they have been buying. Do the math, compare it with acquisition cost and see which profile deserves your next prospecting effort.
Your company's first online business round is on us: all you need is an active Brazilian CNPJ (the Brazilian company registration number), once per CNPJ, and contact details are only shared when both sides mark interest. See the upcoming business rounds and look for conversations with the client profile that is worth the most to you.