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LIFETIME
VALUE
COPYRIGHT 2016 LOCAL MARKETING BLUEPRINT AND MODERN ENTREPRENEUR
CUSTOMER
LIFETIME VALUE
The hardest and most expensive you and your business will ever do is
acquire a new customer.
One way to grow you business without having to make that kind of
additional investment is to tap into what you already have: your customers.
If you don’t have customers yet, that’s OK. Come back to this once you do. I
do this EVERY single quarter and suggest you do to.
But how do you figure out where to focus or set a baseline as to where
you’re at? First get clear on your profit margins and the lifetime value of
your customer(s).
For the profit margin calculation, list each service or product you offer.
Can’t do that? Go with the top 10 most popular products or service options.
A retail business and that doesn’t work? Structure your worksheet by
customer type and average sales amount.
Example:
- Wholesale
- Online
- In-store
- Referral Partners
COPYRIGHT 2016 LOCAL MARKETING BLUEPRINT AND MODERN ENTREPRENEUR
Before we dig in, let’s make sure we’re familiar with a couple key terms:
GROSS PROFIT:
The total amount of money you made – before you subtract what it cost to
deliver the product or service.
COST OF GOODS:
What it cost for you to provide the good or service you sold. It has to be
directly related to the good or service.
NET PROFIT:
What you made after you subtracted the cost of goods from your Gross
Profit number.
PROFIT MARGIN:
Percentage of profit you’re able to keep after paying for the delivery of the
product or service.
FILL OUT YOUR PROFIT MARGIN
CALCULATOR HERE.
COPYRIGHT 2016 LOCAL MARKETING BLUEPRINT AND MODERN ENTREPRENEUR
LIFETIME VALUE
OF YOUR CUSTOMER
OK. Now we’re clear on your margins.
But how much are your customers spending with you in their lifetime? What
is one customer worth to you.
“But how do I figure that out?”
First determine your assumptions.
What is the average order of service or product by customer?
How many times do they purchase every month or year?
How long do they stay a customer (1x purchase, monthly, over a certain
period of years, etc.)?
COPYRIGHT 2016 LOCAL MARKETING BLUEPRINT AND MODERN ENTREPRENEUR
If you’re new to business, look to your competitors to get some ideas
around pricing and length of contract/customer relationship.
Already in business?
If you’re a service provider, break it down by past customers. Dig through
the last 2-3 years and come up with average spend by customer.
If you’re a retailer, look at wholesale and direct consumers (it might be that
direct consumers are 1x purchasers) – you might even have an ecommerce
piece in there – treat that separately. Dig through the last 2-3 years.
Restaurant? Industry standard is about 1.7x per month and that customers
stay for 2.7 years. Does that feel right? Tap into your servers and ask.
We are not assuming any word of mouth referrals at this point (which has
it’s own financial value) and instead just on the current customers you have
now.
COPYRIGHT 2016 LOCAL MARKETING BLUEPRINT AND MODERN ENTREPRENEUR
FILL OUT THE YOUR LIFETIME
VALUE (LTV) CALCULATOR
HERE.
So now you have insight into the lifetime value of your customer.
Did anything surprise you?
Are there one time buyers you could re-engage?
Or ways you could get people to come back?
What about their experience made them leave?
Could you adjust your pricing or provide bundles or packages to increase
your average spend amount?
Focusing on how to increase the lifetime value of your customer through
the average spend, length, or even just volume of new customers that
could fall into repeat customers is hands-down the highest leverage point
you have in growing your business.
COPYRIGHT 2016 LOCAL MARKETING BLUEPRINT AND MODERN ENTREPRENEUR