How do I find my retention rate?

Take the customers who used you last year and count how many used you again this year. That is it. Most field service software can produce it in a few clicks, and for most contractors the number is materially lower than the impression.

Should referrals be in the lifetime value?

They are real and they are hard to attribute honestly, so keep them out of the core figure and treat them as upside. If you want to include them, measure them — ask every new customer how they found you and count it properly.

Does this work for one-off trades like roofing?

Less well, because the repeat cycle is measured in decades. For those, the value is mostly in referrals and in adjacent work rather than in repeat purchase, which makes this calculator a poor fit and a referral count a better metric.

Free tool

Customer lifetime value calculator

The first job is rarely where the money is. What decides whether a customer was worth winning is how many times they come back, and almost nobody has measured it.

Method reviewed by Darren Lim, US CPALicence CPA.74253602

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A customer is worth

$984

In gross profit, discounted, over an expected 3.6 year life. Which is within your own trading history, so it is an observable claim rather than a projection.

Spend per year$780

Gross profit per yearat 44% margin$343

Expected lifeat 72% annual retention3.6 yrs

Lifetime gross profit, undiscounted$1,226

Discounted at 10% a year — the honest figure$984

Less cost to win them-$240

Net lifetime value$744

Value to acquisition cost4.1×

Most you could rationally spendto win one and still break even over their life$984

Five more points of retention is worthper customer. This is what the follow-up call and the maintenance plan are actually buying.$266

Gross profit, not revenue, over a realistic life

Lifetime value only means anything in gross profit. A customer spending $900 a year at a 40% margin is worth $360 a year to you, not $900, and comparing acquisition cost against the revenue figure is how contractors end up buying customers at a loss and scaling it.

Life comes from retention. A customer base retaining 70% a year has an average life of a bit over three years; at 85% it is nearly seven. That difference roughly doubles what every customer is worth and it changes what you can afford to pay for one.

What it lets you decide

The acquisition ceiling. If a customer is worth $1,400 in gross profit over their life, you can rationally spend a lot more than $200 to win one — and most contractors will not, because they are comparing spend against the first job.

It also settles arguments about discounting a first job. Taking a thin margin on job one is defensible when lifetime value is strong and indefensible when customers do not come back, and those are different businesses that look identical for the first ninety days.

And it prices retention work. If lifting retention five points is worth several hundred dollars per customer, the follow-up call, the maintenance plan and the tidy van suddenly have a number attached.

Do not let it become an excuse

Lifetime value is the most abused number in marketing, because it is a projection about a future nobody has observed yet and it can be inflated to justify almost any spend.

The discipline is to take retention from your own repeat-customer data rather than from a hopeful assumption, and to sanity check it: if you have been trading three years, you cannot honestly claim a seven-year customer life.

Discounting future years is also reasonable — money in year six is worth less than money now, and for a business that needs cash this year it is worth much less.

Common questions

How do I find my retention rate?: Take the customers who used you last year and count how many used you again this year. That is it. Most field service software can produce it in a few clicks, and for most contractors the number is materially lower than the impression.
Should referrals be in the lifetime value?: They are real and they are hard to attribute honestly, so keep them out of the core figure and treat them as upside. If you want to include them, measure them — ask every new customer how they found you and count it properly.
Does this work for one-off trades like roofing?: Less well, because the repeat cycle is measured in decades. For those, the value is mostly in referrals and in adjacent work rather than in repeat purchase, which makes this calculator a poor fit and a referral count a better metric.

What we do about it

Revenue tracked by customer rather than only by job, so repeat rate and lifetime value are figures that come out of your own books instead of estimates assembled from memory.