Using Customer Future Value for Better Financial Projections

Customer future value (CFV) is how to measure the amount of potential revenue one guest should generate for your business over an identified future period. For example, how much a new customer you win today will earn you over the next 12 months. 

CFV is an important metric for all businesses. However, it’s even more important in industries with lower-than-average profit margins, such as the restaurant and c-store industries. When your business’s ability to stay open and profitable depends on financial forecasting and strategic planning, having a clear understanding of CFV impacts customer retention and your ability to evaluate long-term profitability.  

In this article, we’ll focus on how to use CFV to make more informed business decisions and improve financial projections.

Understanding Customer Future Value 

Most businesses and the popular search engine Google use the terms “customer future value” (CFV) and “customer lifetime value” (CLV) interchangeably. However, they represent distinct metrics. While both assess the potential revenue a customer brings to a business, the timeframes and purposes for these measurements differ. 

CFV estimates the revenue a customer is likely to generate in a specific future period. Unlike CLV, CFV disregards past purchases and emphasizes a forward-looking approach. For restaurants, CFV is especially useful for short-term planning, such as seasonal promotions, quarterly goals, or strategic investments in customer engagement. 

CLV measures the total revenue a customer is expected to generate for a business over the entire duration of their relationship. This metric focuses on the entire lifespan of customer interactions, including past behavior and future projections. Restaurants use CLV to gain a complete view of a customer's worth, often to justify acquisition costs or evaluate long-term strategies. 

Calculating Customer Future Value 

To calculate customer future value, use this formula:  

CFV = (Average Order Volume (AOV) x Purchase Frequency x Profit Margin) x Customer Lifespan 

For example, let’s say guests tend to visit once a month for four years, on average. They spend $35 per visit and your restaurant keeps 20% of that as profit. Your customer future value would look like that:

CFV = ($35 x 12 x 0.20) x 4 = $840 

This means the average customer is worth $840 in net profit to your business from when they first visit until their last visit 4 years later. 

How you calculate this data depends on what tools you already have in your tech stack. This might be simply spreadsheets in Excel and Google Sheets to your POS system, analytics platform, CRM tools, or financial forecasting and planning solutions. If you already use any of this software, review if this information is being calculated for you. 

Integrating CFV into Business Strategies 

Once you have a solid understanding of your customers' future value, start incorporating these insights into your financial projections and strategic decision-making. By factoring in CFV, you can create more realistic revenue and profit forecasts. This allows you to set achievable sales targets, manage cash flow more effectively, and make better-informed decisions about investments, property expansions, and other growth initiatives. 

For example, if you know the average CFV of your customers is $840, you can estimate the total lifetime value of your current customer base and use that figure as a foundation for your financial projections. This provides a more accurate picture of your restaurant's long-term earning potential. 

Analyzing CFV data enables you to segment your customer base and identify your most valuable patrons. Then, tailor your marketing strategies, loyalty programs, and service offerings to maximize retention and lifetime value for these high-value customers. 

Conversely, use CFV to pinpoint customers who may be at risk of churning. Try to proactively address any issues and implement strategies to mitigate those risks. You might be able to extend their patronage of your restaurant this way. 

Leveraging Customer Future Value for Growth 

Integrating CFV into business decisions helps with growth and profitability. Analyze and compare the CFV for different customer groups to know how to best allocate marketing dollars. Target your customer acquisition and retention efforts to customers with the highest potential of becoming loyal, high-value patrons.  

Use CFV insights to personalize messages, offers, and customer experiences. Tailored communication strengthens relationships and encourages repeat business and referrals. Monitor the success of these campaigns through growth in customer retention and longevity.

3 Challenges and Considerations 

CFV is clearly beneficial. Yet, sometimes restaurants encounter challenges when calculating and implementing insights gathered from CLV. 

1. Data Reliability 

Reliable data is key for CFV calculations. Without accurate data, it’s impossible to make informed decisions. Bad data equals incorrect insights. Invest in systems to track customer behavior, sales, and profitability metrics if you don’t have a good data analytics solution in place. 

2. Shifting Preferences 

Customer preferences change over time. In some segments, this happens more rapidly than in others. Be sure to regularly update CFV calculations to reflect changes in customer preferences and market conditions. 

For instance, as customers turn to desiring healthier options, what kind of products reflect this on your restaurant’s menu? Could you offer some healthier, plant-based options so customers don’t skip your restaurant to buy from a competitor that does? 

3. Resource Allocation 

Balance investments between acquiring new customers and retaining high-value ones to achieve long-term profitability. All businesses need to spend some resources and effort attracting new customers, even though it’s more cost-effective to invest in customer retention efforts. However, it’s retaining high-value guests that drives consistent, long-term revenue. 

Customer acquisition often requires higher upfront costs, such as restaurant advertising and promotions. It’s key to growth, especially in competitive markets. Focus on targeting segments with the highest potential lifetime value to maximize returns on these efforts. 

Retention strategies typically deliver higher returns at a lower cost. High-value customers are already familiar with your brand, reducing the need for costly outreach. Invest in loyalty programs, personalized service, and targeted engagement to keep them coming back.  

What Does This Mean for Your Business? 

In the competitive restaurant industry, using customer future value informs better business decisions, improves retention, and drives sustainable growth. 

Calculate your customers’ future value, segment your customer base, and implement targeted strategies to maximize value. This positions your restaurant for long-term success. Schedule a demo now to learn more about how Paytronix’s restaurant solutions, including how to revamp loyalty programs, may help.