Local online marketing – what is the best way to figure out the lifetime value of an email subscriber?
The absolute fundamental aim is to make money out of satisfying customers. – John Egan
So what is a satisfied customer actually worth to you and your business over a lifetime?
As a small service provider, I have quickly discovered the value of repeat customers. The clients that have been with me from the beginning have contributed a significantly to my overall revenues and income.
Frankly without my core customer base, I would have failed with my little start-up long ago. Yet all too often, I have found that the small business owners that I work with will overlook their current customer base in favor of chasing after *new* business.
Now this is natural reaction, if your business has taken a hit to the bottom line over the past couple of years. Business slow-downs scare everyone and you want to get as much new business in the house as you can.
But I believe that too many small business people leave too much money on the table by ignoring or giving short shift to their long-time customers. And this is because most people simply don’t really understand the actual value that a single lifetime customer is worth.
Why is lifetime a customer important?
– They provide the immediate income (money now) that is the “bread and butter” earnings that all small companies need to survive. These customers are the ones who allow you to keep the lights on, feed your family and cover your other basic expenses.
– They provide unseen additional income. Most clients or customers buy more products and services than they initially intended to. This is a natural part of the sales process – we all have been subject to the “Oh, what’s that? I gotta have it!” syndrome.
– They provide testimonials of your good work or quality products. We all have been burned from dealing with unethical service people and buying junk products. So have all your potential clients! Satisfied customers provide the necessary proof or guarantee of your company’s credibility.
– They provide referrals and word-of-mouth marketing. Nothing beats a personal referral from a satisfied client or customer when it comes to growing your business. Depending on the person, a happy customer can easily spread the good news about you to hundreds or even thousands of other people.
– They provide repeat, long-term income (money later). A happy customer or client will use your products or services again and again. They will become real “fans”, not some “like-me-click” on a social network but people who love what you have to offer and willing to spend money to obtain it.
And it’s this repeat income that truly makes lifetime clients or customers so valuable. But how to you calculate the lifetime value of a client?
The definition of LTV (Lifetime Value) is the total profit produced by the average client or customer over their lifetime association with your business. Basically this means: how much money does the average customer or client spend with you during the whole of their involvement with your company?
Now at first glance this calculation seems easy to figure out, right?
A. Your estimated average sale or service fee during a year is…
B. The estimated number of times customers reorder during a year is …
Now, multiple figure A by figure B to get your estimate for the average LTV of your customers.
For example, if you run an auto repair shop, all you need to do is track the number of times a customer brings his/her car in for work and how much profit you made from each job.
Once you a good sampling of your customers, you can then just crunch the numbers and extract the actual dollar value of the average client or transaction over the course of a year.
So the first time a that 1985 Volvo comes in the owner gets a simple oil change and an vehicle inspection for a total of $90. Over the course of the next year, they have 2 more oil changes, 2 new tires and a 4-wheel brake job for a total of $900. This means this specific customer was worth an average of $990.
If this is typical then you have an excellent starting point. But the problem come up when you realize, that yes, you recognize both the 1985 Volvo, it’s owner as repeat customers but you can’t quickly or easily track their transactions during the past year with you!
Your billing system was never setup or designed to do this kind of thing. So in order to get a handle on your lifetime value, you must consider the following things.
First you have to be able to track customer or client sales data. Depending on the business model you have this might be easy or very difficult.
If you have a POS (point of sale) system, with a bit of tweaking you should be able to create a list of customers’ purchases or transactions by name or some other identifiable item. Or you can use a simple sign-in sheet or spreadsheet to keep track of each client.
Next you need to discount your duds. Nobody likes to admit that a client or customer has fled the site, especially if they still owe your money! But get over it and discount any pending payments out of their lifetime equation and use count the relationship as dead (for this project anyway).
Once you have a tracking system in place now you can start calculating how much a single customer is really worth to your business.
You just might be surprised at how much income your existing customer base brings to your bottom-line versus the additional costs of acquiring new customers.
Oh, and don’t forget to watch my video tutorial: “How to Get Customers & Clients Fast!” – You can sign up for FREE here: