This is going to be a short and sweet blog post to show you how to work out (roughly) what the CLV (Client Lifetime Value) is of your client.
Why would you want to do that?
Well firstly, it helps you determine how much you can spend to acquire a new client and still be profitable. This will put you miles ahead of your competitors and has the potential to grow your businesses exponentially!
Because all your competitors are looking at the CPC (Cost Per Click) of their adverts, and are being put off by how expensive they are because they don’t know where the true value lies.
We will share this little trade secret with you, so you can change your mindset, and start dominating your competitors when it comes to online marketing.
NOTE: Remember we are trying to find the AVERAGE Client Lifetime Value. Some clients will spend more and others less, so a realistic average is where we need to be to make informed decisions.
Start here: Timeframe
First things first. If you have been in business for a while you will or at least should know how long the average client sticks around with you for.
If you have just started a business then try to be realistic based on experience or industry knowledge.
Do you offer a service that requires monthly maintenance? Do you sell a once-off product and then upsell other products and then maintain these products? Maybe you sell products only? But your clients tend to buy from you over and over again for a certain amount of time?
We need to establish what this time frame is.
For eg: Tom runs a Pool Shop. He services pools as well as sells chemicals, pool related products and builds new pools and renovates old swimming pools.
His most profitable product is his weekly pool cleaning services. He knows that his average client sticks with him for 5 years.
So let’s take 5 years and write that down.
Tip: If you have a billing system in place you should be able to get some idea of how long your average client sticks around with you for.
Then go here: Profit
Ok now that you know how long the AVERAGE client sticks around for, you can now work out more or less what they spend with you during this period.
Remember we are looking for profit number here. Not turnover spend.
Ok so let’s take Tom again as an example here again.
Let’s assume Tom charges R900pm for his weekly valet pool services.
Of this R900 he makes roughly R350 profit after paying his staff, vehicles, petrol and rent.
So he makes R350 profit each month from each of his clients.
His average client sticks with him for 5 years.
The maths should be pretty simple from here on… But let’s do it anyway.
R350 x 12 months gives us a yearly profit of R4200 if we multiply this by 5 years then we can see that the average client is worth R21 000 in pure profit to his business.
So the AVERAGE Client Lifetime Value is R21 000.
Remember the client could spend more on pool supplies, pool repairs, refer Tom to friends, and maybe use him to build a new pool for him or her and their new property.
Now that you have landed a new client, your job is to impress them, give them awesome service and reap the rewards. Your goal is to increase that R21 000 profit to R42 000 during the time they spend with you.
And the only way you are going to do that is if you offer immense value to someone and remind them that you are around and educate them on what it is you offer with clever marketing tactics.
But wait there’s more….
Now that you are aware what your average client is worth to your business how much are you willing to spend to get a R21 000 return on investment? Is it too expensive to spend R500 or R1000 to land one client?
I didn’t think so.
Open your mind, grow your bottom line and dominate your competition with the new knowledge you have just gained.
Most of your competitors have no clue, and are worried about paying R20 per click for their ads, but they don’t see the bigger picture.
P.S Still reading?… Why not book a free 30-minute consult with me or my team to see how we can help your business grow this year? Valued at R3000 for absolutely nothing! Spots are limited so book now before we start working with your competitors.