you can really increase your profits by knowing the lifetime value of a customer!
Do you have a favorite offline local (family) restaurant and or ice cream parlor that you like to frequent?
Tons of local small businesses inadvertently benefit from the total lifetime value of a customer concept, without necessarily really understanding it.
Meaning- because their particular small business (and or) service has been in the family for several generations and over that time they’ve really gotten to know several of their patrons and their immediate family members (meaning) kids and grandkids etc.
They’ve been able to bond and continue to pay the bills.
And (hopefully) grow their enterprise as a direct result of the steady cash flow generated by all those additional generations of family patrons that continue to shop where (both) Mom & Dad and their grandparents before them did as well.
Sears is a great example of this concept in action.(Although sadly, as of late, Sears is a mere shell of what it once was.)
This post is going to offer five incredibly simple ways to extend,stimulate and capture up to 25% more of your ideal customers/clients disposable income by giving them more (and ) better incentives to spend more money,than your major competitors currently do.
How To Understand And Really Take Advantage Of The Lifetime Value Of A Customer Concept!
Basically, in a nutshell, your customer (and or) clients total lifetime value. Is is sort of (short hand) math that lets you quickly calculate how much gross profit they spend with you and or bring via their referrals (and) repeat business over their entire history with your business,product or service.
Whether you primarily market on or offline. And ‘no’ it doesn’t matter what your particular niche is, this basic concept will still apply.
For ex; let’s suppose that you run a successful (local) offline hair salon. And your typical customer comes in once per month (or) twelve times per year.
And they usually get a wash, rinse and trim. And they’ll typically spend $60 dollars (or more) and you net 75% of that amount or $45 dollars. ($60 x.75%=$45 dollars gross profit per visit.)
Entrepreneur This Is How You Systematically Build An Extremely Profitable Sales Funnel!
And let’s say your typical customer stays with you for about five years (or) 60 months. (12 months per year x 5 years =60 months.)
And during that time, they recommend at least ten people to your shop, and 40% of them (or) four people actually stick.
Your ideal customers (quick math) total lifetime value is; the gross total of what they spend over the years (on average.)
Plus, the total number of referrals that actually became steady customers. Which in this particular example was four out of every ten referred. (10 referrals x a .40% retention rate = four new long term customers/clients.)
Of course there is simply no real way to know (precisely) upfront how much money each new long term customer will spend, but merely for the sake of example, let’s pretend they all spend the exact same amount, in order to really zero in on the math! Okay? Thanks!
Knowing The Lifetime Value Of A Customer Allows You To Systematically Out Promote Your Competition!
Take a look at these eye opening numbers. Your ideal long term customer/client, will come to your shop twelve times per year.
And you’ll gross (meaning before paying any taxes), $45 dollars per visit and (on average) they’ll remain an active customer for at least five years.
Plus, they’ll recommend or refer at least four other people that will do exactly the same thing! Here’s your math.
A.) Twelve visits per year at $45 dollars each, times 60 months or five years, times four! ($45 x 12 = $540 gross per year.
B.) Five hundred forty dollars gross per year ($540) times five years (60 months) = $2,700 dollars gross profit per customer.($540 x 5 =$2,700)
C.) ($2,700 gross x four new long term customers/clients equals a grand total ‘lifetime value metric’ of $10,800 dollars per extremely loyal customer! ($2,700 x 4 referral customers = $10,800 gross profits!)
Even A Mediocre Performing Marketing Funnel Is Still A Potentially Valuable Asset! (Don’t You Agree?)
That my friend is the real fast and dirty way of looking at and loosely calculating (in this) particular example, the total and real ‘lifetime value of a customer’ to your small business and or service!
As was previously mentioned, more than likely, not all your new referral based customers will happen to spend the exact same amount or stay as many years as the person that originally referred them! Correct?
Nor will they all spend the exact same amounts when it comes to upsell/add on sales etc! This at least gives you a much better idea of what you and or your valued associates are really sacrificing, anytime you grossly mishandle and or simply blow off a paying customer and or client! Any questions!
In part two of this series; you’ll discover the five little known and rarely revealed secrets to successfully maximizing profits using this mega proven marketing concept!
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And be sure you grab your explosive free 22 step small business marketing idea kit series. It’s a $97 dollar value and it’s free!
