Lifetime Customer Value

One of the greatest mistakes most business owners make is to base all their results on the first sale. Here’s what I mean…

Let’s say on the first sale a new customer pays you $1,000. Your gross margin after delivering your product/service is 50%, which means you make $500 per new customer.

However, it cost you $600 to generate this one customer (the cost of your advertising) so you actually made a loss of $100. Based on these assumptions you’d conclude that this approach was not profitable and you’d no doubt cease using it.

That’s how 99% of business people evaluate their success – based on the first transaction or sale.

Now as you know, one of the great advantages you have when selling most products or services is that often the customer keeps coming back for more. And even if you sell a ‘one-off’ product or service you should get referrals from customers and strike up joint venture relationships to sell non competing products or services to your customers.

That means the customer is actually worth much more to you than the amount generated on the first transaction.

This in effect is what’s known as Lifetime Customer Value.

Quite simply, Lifetime Customer Value is the average profit a Client generates during the duration of the relationship with your business.

A good guide to use is 5 years for the duration (but you will know what their average lifetime is).

Let’s use the above example to show you the BIG difference this approach can have…

Now let’s say one new customer generates the same $1,000 per year but they pay this every year for 5 years. Your gross margin for delivering your product or service is the same 50%.

That now means by looking at the value over the duration of the relationship, the average lifetime value is $1,900 ($5,000 x 50% = $2,500 – Cost of advertising $600) and not -$100 like we had in the first example! Plus these figures don’t include any referrals the customer would also bring!

Do you see the difference? All it takes is a simple shift in thinking, and you can leverage your business so much that it astonishes their competition.

And where does this leverage come from I hear you ask?

Well now you know what each customer is worth to you, it means you can actually spend more money to acquire the customer in the first place. This is where the whole issue of creating Irresistible Offers comes into play.

The Irresistible Offers you create makes it impossible for your prospects to ignore you, and as a result you rapidly increase your customer acquisitions!

This conveniently fits into Business Multiplier 3. But when you calculate the Lifetime Customer Value of a customer and you use irresistible offers, for example, you can transform the success of your lead generation (Multiplier 1) and sales conversion (Multiplier 2).

So in reality this is one of the few strategies that transcends through each of the 3 Multipliers. That’s why it is one of the most potent weapons any business can use.

We therefore work with our clients to ascertain the Lifetime Customer Value and then create the irresistible offers that will compel even the most difficult and loyal customers (of their competitors) to buy from them.

Again we have dozens of proven templates to use and adapt as necessary.

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