Lifetime value is not a new concept in marketing and business but it often astounds me (in a slap-on-the-forehead kinda way) that many business owners don't 'get it'.
Here's the simple explanation: A client will spend an amount with you in their 'lifetime' of being your client. So if you sell something for £500, and then for the next 5 years that client needs something more from you for £100 each year, then their lifetime value to you is £1k.
Or if you sell something for £50 but that client buys it every month for 5 years that's a lifetime value of £3k to you.
Lifetime value is the 'number' you need to have in mind when you are evaluating your marketing, when you're working out your investment into how much to spend (time or money or both) in getting a new customer.
Lifetime value is why supermarkets and other shops have 'loss leaders' (because they will make back profit over time on all the other things you buy from them).
Now I appreciate I might be teaching you to suck eggs here, but do double-check your decision making process right now. Are you deciding on ALL your marketing and promotions based just on the sale of the actual thing you're marketing? What about the lifetime of purchases that new client may make from you.
I personally offer things in my business as a loss leader (a free Spotlight Call is an example of this), and I also offer other programs and products that I don't mind spending a lot of time and money (or both) on promoting as I know that this new customer may well then buy something more from me in the future - in their 'lifetime' with me.
So go back again to the £50 product with the lifetime value of £3k. It's actually worth it (in a business sense) spending £100, £500 or more to market that £50 product, as the return over the lifetime of having that client buy from you is still greater than the investment (obviously there are costs and other accounting numbers to consider), but on a simplistic level if we assume it's all profit then you can see how this works.
S0 work out your numbers - know what your margins are, know your lifetime value, and spend accordingly. A loss leader does not make you a loser. Ask Tesco! They seem to be doing alright :)
Want to talk more about this?
Love your posts and would be more than happy to re tweet/facebook etc is there any chance of having an easy button to press for me to do that for you? I am completely techno phobe!!
Michele I will get the technical department onto that! :)
sound advise and something we all at some time or another forget
Thanks Paul. It’s definitely easy to forget. And I know some companies I try and do business with don’t even think about it :) Their lifetime value from me then = 0!