Marketing MISTAKE #23 – Not Calculating & Profiting From Lifetime Customer Value

One of the greatest mistakes people make is to base all their results on the first sale.

Here’s what I mean…

Let’s say on the first sale a new client or customer pays you £1,000. Your gross margin after delivering your product or service is 50%, which means you make £500 per new customer.

However, it costs you £600 to generate this one customer (the cost of your advertising) so you actually made a loss of £100.

Based on these assumptions many people would conclude that this approach was not profitable and would no doubt cease using it.

That’s how 99% of business people evaluate their success – based on the first transaction or sale.

Now, in most businesses, the customer keeps coming back for more.

And even if you sell a ‘one-off’ product or service you can and should get referrals from your clients or customers and start looking to ‘partner’ with other non-competing but aligned businesses so you can offer their products or services (for a commission of course!).

That means the client, customer or patient is actually worth much more to you than the amount generated on the first transaction.

This in effect is what’s known as Lifetime Customer Value.

Quite simply, Lifetime Customer Value is the average profit a client generates over the duration of the relationship with you.

A good guide to use is 5 years for the duration (but you’ll know what your average lifetime is).

Let’s use the above example to show you the BIG difference this approach can have…

Now, let’s say one new client, customer or patient generates the same £1,000 per year but they pay this every year for 5 years. Your gross margin for delivering your service is the same 50%.

That now means by looking at the value over the duration of the relationship, the average lifetime value is £1,900 (£5,000 x 50% = £2,500 – cost of advertising £600) and not -£100 as we had in the first example!

Plus, these figures don’t include any referrals the customer would also bring!

Do you see the difference?

All it takes is a simple shift in thinking, and you can leverage your business so much that it astonishes your competition.

And where does this leverage come from I hear you ask?

Well now you know what each customer is worth to you, it means you can actually spend more money to acquire the customer in the first place.

This is where the whole issue of creating Irresistible Offers comes into play.

Your irresistible offers make it impossible for your prospects to ignore you, and as a result you rapidly increase your client or customer acquisitions!

Thanks for reading.

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