How Much Money And Time Do You Spend To Bring In A New Client?
An even more important question to ask is, “Do you know the ‘Life Time Value (LV)’ of that client?”
Very few business owners take the time to learn this important secret. They don’t understand what a “life time value” is!
In addition, they don’t realize how viewing customers with this approach can change the way that you do everything in your business.
What does “lifetime value” really mean? It’s pretty simple. Lifetime value is the average amount of money that a customer spends (and the profits that you make) from the first time that the person buys something until his/her last purchase.
Adlai E. Stevenson
For example, if your average sale is $50.00 and the profit on that sale is $15.00, and your average clients buys from you 10 times per year for five years, then your sales to them are $2,500.00 with a LTV of $750.00 in profit. You should be able to determine how many “average” customers you need to have to make the profit that you desire.
If the actual figures on this are not available or are hard to calculate, use your “best guess.” Attempt to figure out what amount your average client will spend during the time that s/he is doing business with your company.
It is even more important to try to determine how much of that total amount is profit. Study the results in detail. You should be able to determine the average number of “repeat” or “backend” purchases that each customer makes after the initial sale.
When you know the average amount of LTV profit that your business will make on each customer, then you will be able to calculate how much you are willing to invest to get a new client.
From our example above, we know that we will make $750.00 of profit on the average client. Knowing this, we also know that even if we spend $250.00 to get that client to buy our products/services, there still will be $500.00 of total profit from that client.
If the majority of the profits that you make on your average customer come from sales made after the initial sale, then it might make sense for you to sell at cost, or even a little below cost, on your first sale. You can do this knowing that you have landed a customer who then will give you the opportunity for additional “repeat” sales.
Knowing your client LTV allows you to focus your marketing efforts. You can target new customers with special “sales” or with other offers designed to bring them in the door.
In addition, you can market to your current and prior customers with campaigns that are designed specifically to generate the repeat business that produces most of your profit. When you can answer the crucial question of “Lifetime Value,” you will be ready to determine how much you are willing to invest to bring in a new client.
Do you know what the lifetime value of your customers is?
If not, what can you do to find out?