What is a customer actually worth?
A new customer can increase revenue while making cash tighter or adding work that is not properly paid for. The useful question is not simply how much they spend, but what remains after serving them and how long you wait to receive it.
Start with one unit you can explain
Choose a unit that matches the business: an order, a project, a subscription month or a customer relationship. Keep the period consistent. Begin with revenue net of discounts and refunds, then subtract costs that rise with delivery, such as materials, payment fees, fulfilment and customer-specific support.
Include the founder’s delivery time at a realistic replacement cost. Unpaid labour can hide a business that only works while the owner accepts an unsustainable workload. Contribution is not profit: rent, core salaries, software and other overheads still need to be covered.
Make acquisition costs visible
An illustrative order with £100 of net revenue and £55 of variable delivery costs leaves £45 before acquisition and overheads. If winning that first order costs £30, only £15 remains from it. These are example figures, not a Pentacorn benchmark or a target margin.
Count more than advertising spend. Sales time, commissions, trial delivery and onboarding can all matter. Decide which costs belong in acquisition and which in delivery, then apply that definition consistently so the same cost is neither omitted nor counted twice.
Do not borrow confidence from future repeat purchases
Lifetime value is an estimate, not cash in the bank. Where repeat behaviour is unproven, show a first-purchase case and separate scenarios for repeat purchases. If there is trading history, examine groups of customers acquired at different times rather than letting long-standing loyal customers hide recent weak retention.
Check cash timing separately. Stock may be paid for before it sells; invoices may be settled weeks after staff have been paid. A profitable order can still require working capital. For an acquisition, examine whether customer relationships depend on the departing owner and whether the reported margins include a market-rate cost for replacing their work.
A next step you can take
- Build a one-page calculation for a typical sale, with a source beside each input.
- Show a downside case with lower repeat purchasing, higher support time and slower payment.
- Ask whether the resulting income, workload and cash requirement fit your ambition before deciding to grow faster.
Explore the Pentacorn Method or see how these questions fit into the eight-week programme.