Lifetime Value Of A Customer Formula:How To Know Upfront What Your Best Customers Are Worth To Your Business! Part One
Even Before You Spend One Thin Dime Trying To Acquire Them…..
Have you mastered the lifetime value of a customer formula?
If not you really should, because it will definitely make you a ton of money faster!
Plus continuously help you avoid implementing a potential losing ad campaign.
Ladies & Gentlemen, study and master this next powerful marketing concept and not only will you be light years ahead of your wanna be competitors.
But you’ll never ever have to to settle for simply spinning the dice when it comes to trying to accurately determine how much you can safely (and realistically) afford to invest in order to acquire a brand new first time customer, client and or patient etc.
Even though they may not teach you this basic (proven) and battle field tested marketing principle at the fancy MBA Business schools like “Wharton” , you’ll still be light years ahead of both your major competitors on & offline once you master this basic (vital) and proven marketing principle.
Mastering The lifetime Value Of A Customer Formula Is Definitely One Of The Ten Most Common Marketing Mistakes Most Small Business Owners Make!
And now you’re going to finally discover how to correct it!
For far too many small (and sadly) even some mid sized companies, really have no clue how to accurately determine the true cost of exactly how much it really cost them to both acquire and keep a brand new first time customer/patient etc.
And for far too many it’s truly a shoot in the dark (and hope) for the best ” Robert B. Parker” mystery novel.
Although the truth told, a much better and far more revealing question is,” how much is your ideal customer worth (over time) to your business?” Especially over time. Huh?
How To Really Calculate Your New Customers Acquisition Costs…
Or as most clued in entrepreneurs like to ask, “What is the true total lifetime value of your best/ideal customer/patient to your business and or service?”
Once you discover this true figure you have just increased your long term chances for overall success by at 450% or more.
Because now you can more accurately calculate the true cost of figuring in the real cost of extending your warranty to your best customers.
Or extending your guarantee time frame ( from 60 days to 90 days or more), or how much you can safely afford to give away in free goods and services in order to participate in that long term JV (Joint Venture) arrangement with either your local radio station and or a local penny saver publication etc.
Your Sales Will Gradually Become More And More Profitable As Your Real World Marketing Knowledge And Skills Steadily Improve!
Or how much to invest in those quarterly display ads or annual yellow page (or other) major directory promotions etc. (Or how much to really bid on your daily or monthly PPC (Pay Per Click) ad campaigns etc.)
Because now it’s more like simply having a real customer acquisition budget, and now you simply figure each cost and decide if the long or short term math works or not.
So Exactly How Much Should You Be Spending To Acquire Your Ideal New First Time Customer Anyway?
The first step you’re actually going to take in accurately determining this calculation is to follow a simple three step research process.
1.) Determine what your total advertising/marketing cost were for the previous week, quarter or year etc.
2.) Next, figure out how many new (first time customers,clients and or patients) you created as a direct result.
3.) Now all you do is simply divide last years entire ad budget cost by the total number of new first time customers/patients and you’ll now have a much better idea of exactly what a new first time customer cost your business and or service.
Your Direct Sales Strategies And Or Tactics Will Definitely Help You Establish Your Initial Data!
Although this particular metrics, are not totally accurate and or comprehensive, simply because you still haven’t accounted for the customers that refer people to you, and a few other considerations (that you’ll discover later.)
But as a general rule you’ll now be able to more accurately determine how much you can safely afford to invest in acquiring a brand new first time customer and or patient etc.
(Also, not to worry if you’re brand new and currently have zero customer/client base just yet. You will simply be using another variation of this incredibly powerful and mega proven concept.)
Do The Math To Help You Determine How Much Long Term Money That Your Leaving On The Table..
For this particular example which is strictly for marketing illustration purposes only. Let’s say that you run an upscale women’s hair or nail salon.
And let’s further say (in order for you) to get a look at these huge numbers and their long term profit potential to your business/service, that your typical customer comes in four times per year once every 90 days.
And on average they spend about $90.00 (or X amount of) dollars per visit for your standard wash, shampoo, tuck and trim. (Whatever the heck that is! 😀 )
And just to keep this math really uncomplicated, do not include any potential upsell/add on sales profit generating strategies and or tactics..
Entrepreneur Start Out Using A Proven Marketing Funnel!
So your ideal customer comes in (on average) four times per year (at $90.00 per visit) and they tend to remain a reliable customer for at least five years or 60 months ( 5 years x 12 months per year equals a grand total of 60 months.)
And let’s further say on average, they also tend to refer at least two customers during that sixty month or five year period, who them become reliable, long term repeat customers as well.
And lets say your gross front end profit margin per visit is 70%. Which means you gross (on average) about $63.00 dollars per visit. ( $90 x .70% = $63.00 )
Now Lets Have A Look At What Your Ideal Customers Total Lifetime Value Is To Your Business…
1.) Since you will gross a pre tax, gross front end profit of $63.00 dollars per visit.
2.) And your ideal customer will average at least four visits per year, that means you’ll gross $252.00 per year off of them. ( $63.00 x 4 = $252.00 per year in annual gross profits.)
(So in this specific example, you now realize there is simply no way you can realistically justify investing more than $252.00 dollars per year!
( Or more than $63.00 dollars -gross- per quarter) in order to acquire a brand new first time customer!) Agreed? Great.
Ladies And Gentlemen Are You Truly Starting To Appreciate How Knowing And Understanding Your Key Marketing Metrics Can Definitely Help You Improve Your Lead Generation Strategies And Or Tactics!
3.) And since you know they’ll stick around on average for about five years or 60 months. Which means you’ll gross a pre tax front end profit of $1,260. dollars. Or X. ( $252 x 5 years =$1,260.) (Are you following these basic calculations entrepreneur?)
4.) And since they’re also going to refer at least two people that end up converting into long term customers as well, this means, your actually going to gross an additional $2,520 in long term additional total customer lifetime value gross revenue. ($1,260 x 2 referrals =$2,5520.)
Initially Try Not To Over Modify Some Proven Direct Sales Tips!
Of course those gross figures don’t (more like) can’t take into consideration any increases in your ongoing expenses, like a rental or lease increase or a higher or lower tax bracket, or an increase in other general expenses, like supplies etc.
But now you have a much better idea of what the true “Lifetime Value” of that brand new first time customer and or patient is really worth (over time) to your business and or service. Correct?
And hopefully you have a much better understanding of the lifetime value of a customer formula, and how it will most definitely benefit your business and or service. Right?
Tracking Your Lifetime Customer Value Stats Helps You Become A Much Better And Or Accurate Marketer!
So now that you realize your new first customer or patient is actually worth a grand pre tax gross total front end profit only of $3,780 dollars. Or X. ( $1,260 + $2,520.)
Do you think you might be able to make a much better and far more accurate determination of how much to invest on a daily, quarterly or annual basis? Oh yea!
Are You Starting To see At Least Three More Practical Ways To Gradually Improve Your Direct Marketing Approach!
(Before you go any further, be sure that you understand it’s the basic, proven overall concept and not the specific numbers you need to understand in order to benefit from this extremely powerful and practical long term money making concept.)
No matter what your particular niche is.
In Part Two you’ll discover three more powerful marketing concepts. So stay tuned. In the mean time. Please be sure and Digg or tweet this.Thanks!
And be sure you grab your explosive free 22 step small business marketing idea kit series. Because it will help you master your effective communication in marketing skills.
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