Lifetime Value of a Customer - Secret to High $$ Clients
Lifetime Value (LTV) of a Customer
The thread is titled Lifetime Value of a Customer (LTV). By definition LTV is the lifetime net profit or value a customer will generate your business in their lifetime.
This marketing and sales analysis is not a new concept, but is often overlooked by Marketers and Business Owners (Our Clients).
Why is this particular info so important? Mainly because it will give you or your client (business owner) an idea of how much repeat business you can expect from a customer, which in turn will help you decide how much you’re willing to spend to “buy” that customer for your business. For your business owner client, this value added education can justify your higher dollar proposal.
I'm going to take a High Level approach to the process, and will expand if needed.
Average your #' s
*How much do you make off each customer per sale, monthly, etc?
*How many customers?
Once a business knows how frequently a customer buys and how much he or she spends, you will better understand how to allocate your resources in terms of customer retention programs and other services they'll need to keep their customers -- and keep them happy.
The simplest way to estimate lifetime value: plug actual or estimated data.
(Avg. Value of a Sale) X ( # of Transactions) X (Avg. Retention Time for a Typical Customer)
An easy example would be the lifetime value of a gym member who spends $50 every month for 3 years. The value of that customer would be:
$50 X 12 months X 3years = $1800 in total revenue (or $600 per year)
Now you can see even from this hypothetical example why many gyms offer a free month membership to help drive enrollment. Gym owners know that as long as they spend less than $600 to acquire a new member, the customer will prove profitable in under one year.
There are more complex ways to calculate LTV including taking a deeper mathematical approach, providing more variables and conditions, to estimate the long term value of a customer. These deeper analyses are needed for higher $$ ad spends.
What type of approach do you use with your clients or your own business?
Do you use a model to justify your clients marketing & advertising budgets... offline and online including all marketing expenses - website, SMS, any ads, etc.
Do you use it in your own business?
The thread is titled Lifetime Value of a Customer (LTV). By definition LTV is the lifetime net profit or value a customer will generate your business in their lifetime.
This marketing and sales analysis is not a new concept, but is often overlooked by Marketers and Business Owners (Our Clients).
Why is this particular info so important? Mainly because it will give you or your client (business owner) an idea of how much repeat business you can expect from a customer, which in turn will help you decide how much you’re willing to spend to “buy” that customer for your business. For your business owner client, this value added education can justify your higher dollar proposal.
I'm going to take a High Level approach to the process, and will expand if needed.
Average your #' s
*How much do you make off each customer per sale, monthly, etc?
*How many customers?
Once a business knows how frequently a customer buys and how much he or she spends, you will better understand how to allocate your resources in terms of customer retention programs and other services they'll need to keep their customers -- and keep them happy.
The simplest way to estimate lifetime value: plug actual or estimated data.
(Avg. Value of a Sale) X ( # of Transactions) X (Avg. Retention Time for a Typical Customer)
An easy example would be the lifetime value of a gym member who spends $50 every month for 3 years. The value of that customer would be:
$50 X 12 months X 3years = $1800 in total revenue (or $600 per year)
Now you can see even from this hypothetical example why many gyms offer a free month membership to help drive enrollment. Gym owners know that as long as they spend less than $600 to acquire a new member, the customer will prove profitable in under one year.
There are more complex ways to calculate LTV including taking a deeper mathematical approach, providing more variables and conditions, to estimate the long term value of a customer. These deeper analyses are needed for higher $$ ad spends.
What type of approach do you use with your clients or your own business?
Do you use a model to justify your clients marketing & advertising budgets... offline and online including all marketing expenses - website, SMS, any ads, etc.
Do you use it in your own business?
"I hear and I forget. I see and I remember. I do and I understand." -Confucius
What if they're not stars? What if they are holes poked in the top of a container so we can breath?