This is a good time to introduce you to one of the most important concepts in business. One that I just touched on in the above example, and when you really understand this it opens up a whole new road where you can run circles around your competitors and gain access to huge profits.
The concept is called Lifetime Customer Value (LCV).
Let’s take a look at a basic model of how to figure out what a customer is worth to you…and then I’ll tell you why this is so incredibly important:
A Your Average Sale =
B Sales Per Year (#) =
C # of Years Customer Buys =
A is the amount of money a customer spends with you on average per transaction.
B is the amount of times a customer buys from you each year.
C is how long a customer stays buying from you in years.
Did you write those numbers down? Good.
Okay, next…
D Gross Sales Per Customer = A x B
E Gross Sales Over Life Of Customer = D x C
‘E’ gives you your LCV. When you plug in these numbers, what you’ll learn is how much you can spend to acquire each new customer.
Important for you to know? Oh, yes.
With this knowledge you can decide if you can spend a bit more to provide your customers with greater value. To keep things simple, let’s say that the LCV of your customers is $1,000. If you were only spending $150 on advertising to acquire new customers or pampering your current customers, you can easily spend more to increase your marketing activities. This will accomplish 2 things:
1) You will acquire many more customers than before because you know that you can spend more money to develop promotions for more targeted prospects and get a higher response (return on your investment).
2) You will be able to confidently spend more money pampering, and providing more value for your customers – keeping more of them as loyal long-term customers.
And you can do all of this because you now know how much each customer is worth to your business.
With this information you will know what you can and can’t do…when it is okay to spend more to take care of your customers…and how to bring in greater numbers of new customers.
Another important point related to LCV is to treat people right. Even if they don’t buy from you today, treat them right, be friendly and helpful…and at some point they’ll come back to you and make a purchase.
In the mean time, while they may not be buying, if you show them respect and a smile, when their friends or relatives need something that you offer, you’ll be at the top of their list…and they’ll recommend you.
Learn this information and incorporate it into your business…it will put you well on your way to success and riches.