How The Lifetime Value of Your Client Impacts Your Profits

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If you’re like most business owners, you’re focusing your marketing efforts on getting more customers.

How do I get more leads? How can I improve my sales process for better conversions?

But there’s a key element you may not be looking at… and it robs you of thousands, hundreds of thousands, maybe even millions of dollars each year.
What we’re really talking about here is the Lifetime Value of a customer (LTV).
The reason it’s so important is because it’s way easier to get a client who already purchased from you to buy again, than to turn a prospect (in a sense, a relative stranger) into a new client.

So increasing repeat business will help you grow without much effort.

But you need to understand the concept of the Lifetime Value and how to calculate it.

Do you know how much will you be earning for every customer you bring in the door?

Well of course it’s always going to be different.

But we can certainly work out an average.

Here’s a little exercise to figure this out for you.

  1. How much does the average customer spend with you on the first purchase?
  2. How many times a year would they purchase?
  3. And how many years would they continue to purchase from you?

By figuring out those numbers, you will quickly be able to work out the lifetime value of a client.

For example; if a client spends $1,200 on first purchase, comes back once a year for 3 years, your LTV will be $3,600.

Does that make sense? Good.

Now, the next question is; for every client who spends $3,600 with you, how much of that is profit?

Well if for every $1,200 purchase you profited $400, then that is a total profit of $1,200 per customer over 3 years.

And you can afford to spend as much as $400 to generate that customer, break even on the first purchase, and still make $800 over their lifetime.

Now this might be a little complex at first, so I recommend re-reading that last section if you need to.

What are the implications?

If you can INCREASE your LTV (lifetime value) of a client, you’re going to be making more money per client.

As a result will be able to spend more on advertising than your competitors and still make a profit.

If you’d like help with figuring out the Lifetime Value of clients in your business, and create a strategy that is designed to increase this number so you can be much more profitable, give us a call at 1300 680 223. We can help.