Understanding The Lifetime Value Of Your Customers

When I used to work one-to-one with clients helping them grow their business through marketing, there was one key question that I always asked:

What is a customer really worth to you over their lifetime?

Sales are the key to business growth, and who’s going to be providing you with that sales revenue? Well it’s your customers.

There’s a common misconception with small business owners where they believe that having products on the shelves will ensure that they sell.

The Kevin Costner quote “If you build it, they will come “ – WRONG!

Without having a stream of customers buying from you, you can wave bye-bye to business growth, in fact, you can wave bye-bye to having a business.

Switching to understanding the value of your customers and focusing on getting more customers (rather than looking at turnover and profit) is the simplest switch to quickly move your business forward. 

Making the most of your Marketing Budget

The first thing that you’ll discover when you learn the real lifetime value of your customer will be why making free or irresistible offers to your customers is a smart move for your business.

This might even mean “going under water” – losing money on your first sale.

For example, try to get your brain round this. You would sell something that costs you £15, for only £5.

On the face of it, not good business, but if you take into account the lifetime value, it changes everything.

For example, if you knew that getting a new customer for your business would be worth £6,500 to you over their lifetime value, then losing £10 on that first sales doesn’t seem so bad, right?

Ask any marketing person and they’ll tell you that getting new customers is one of the most time consuming and expensive aspects of running a business. So if you’ve gone to all the effort to get that new customer, it makes sense to look after them – and offer them something of real value from day one.

Would you like an example of how to implement this lifetime value strategy?

Let’s say you have a restaurant – you have a reputation for the best Sunday Roasts in the area.

You could identify the highest earning group of local residents and send them a letter.

The letter would invite them for a complimentary Sunday Roast for him/her and their family.

Let’s say we sent 150 letters and 100 people shown up.

That’s 100 customers who are visiting your restaurant – and becoming customers.

Most of them will order extras – whether that’s an extra Yorkshire pud or some drinks to wash their meal down.

You’ll find that a high percentage of these will turn into regular weekly customers.

Whereas usually it would take six months to get 100 customers though the door – you could get them in within six days.

Make sense?

Ways in which you can optimize the Lifetime Value of a Customer

Here’s some ways that you could take advantage of the lifetime value rule:

  • Get their attention by offering them something high value – whether that’s something free, or maybe a trial, a brochure or a gift – but offering them a “no brainer” offer is vital – 5% and 10% off don’t cut it, avoid.
  • When you do offer something for free, ensure that you attach a value to it – for example if you’re offering free reports – they should be $99 – but your customer is getting one for zilch
  • Once you’ve got the customer, find ways to continually add value to get them to come back again and again. That could be by sending them regular vouchers, creating incentives, loyalty cards – anything to get the customer back through the door time and time again.

Just remember that in the grand scheme of things, not making much money now is completely fine as long as you know that the lifetime value of your customer is going to take care of you later on.

What could you do TODAY to find new customers that your competitors (who don’t understand the lifetime value rule) will think is crazy?

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