Determining The Lifetime Value of Your Customers


This past week I had to fire the landscaping company that I'd been with for almost 3 years.

The reason?

It all boiled down to the fact I felt multiple issues remained unresolved and that my concerns were going unheard…

For example, it was the 3rd time my For Sale By Owner Sign had been hit.

You can see the results here – forsalebyownersigndamaged

Now, you may be thinking -” big deal – so you fired your yard guy?”

Well, it just so happens this was someone I'd paid monthly to take care of everything – weeds, the lawn, flower beds and this was the same company I'd hired for the initial install when building our house.

And now, that the house is for sale – guess who I'd planned on using?

You betcha – It was these guys.

That is until multiple issues like the one I just explained.

Now, here's the reason for this post and the takeaway…

First of all, I'd spent almost $12,000 in 3 years with this company as they were the only ones to touch my grass.

Plus, I'd planned on using them for the next build – which if we calculate that into the equation that would be roughly $5,000 (if we're figuring it low).

That's a $17,000 customer gone over a $20 sign.

Sounds crazy – right?

But that's not even counting the revenue from the future maintenance of my yard while we sold our home or after we build our next home or the fact that I've been responsible for getting them other jobs with other builds.

Most businesses are so consumed with getting new customers that they often overlook the real profit center which is maintaining, nurturing, and encouraging repeat business.

You've probably heard it before – the real money is in the back end.

And it all boils down to knowing the Lifetime Value of a Customer.

No one taught me this in college.

The first time I'd even heard the words where from a Jay Abraham training I'd bought.

I've embedded one of Jay's videos below that I highly recommend you watch right now.

This one concept can literally change your business immediately no matter if you're an affiliate marketer, local seo company, a local gym, or a landscaper.

So, how do you figure the Lifetime Value?

  1. Figure out what the average price per transaction X
  2. How many times the customer will make these purchases over a month (or year)  X
  3. On Average how long they'll stay a customer =

Lifetime Value.

So, if the average ticket is $50

And the average customer buys 2 time per month.

And the customer sticks for an average of 5 months.

Then the Lifetime Value in this case is $500

Let's use a real life example.

Suppose we're helping a local gym.

And the average ticket per month is $55.

And suppose the average customer stays for 18 months.

So, $55 per month X 1 charge per month X 18 Months = $990.00

In this case, the lifetime value is $990 per customer.

Now, the business owner can decide how much to spend to get their average customer.

We'll go more into those options in a future post, but for now…

Let's take this one step further.

What if hypothetically we could get the customer spending more than just 1 time per month?

That's where we'd really start to grow the business offering them other products and services.

Our goal would be to increase the amount they spend per transaction and to boost the number of transactions they make.

For the gym example, these include…

  • Personal training
  • Supplements
  • Protein Shakes
  • Additional group classes
  • Creating online content from your training (you can record your training, your advice – repurpose it into an online class or book)

While this seems rather simple, this is how you scale.

The bottom line is that you know your numbers in the first place.

This is the same process I took to turn around a local, struggling business that I knew nothing about.

The first week we took over, I figured the average ticket per person was $45 and some change and I knew how many times they were repeat customers.

Most businesses have no clue what their numbers are.

Once you get the numbers, it's now a matter of simple math on how much you're willing to invest in order to bring in new customers.

It really is that simple.

Advertising and marketing is an investment in your business to bring in new faces while building a herd of hard core fans.

And if you're able to have the highest Lifetime Value of your competition – then you can afford to invest more in your marketing for bringing in new customers.

You can outspend them to buy new leads.

But again, it all starts with knowing your numbers.

In closing, if you want to really help your business, the company you work for, or for your clients – the first thing you can do is know the numbers.

Not only will this help them by knowing their numbers, but once you figure it out – you're able to use that in negotiating your services.

For example, lets suppose you're pitching your SEO services to a cosmetic dentist.

And you find out the average client is worth $4,000.00

Are you still going to pitch your services for $400 per month?

I think not. 🙂

Let me know your thoughts in the comments below…

About the Author Derek Pierce

Derek Pierce is an online marketer specializing in Search Engine Optimization. He used his SEO to escape over $100,000 in credit card debt building a 6 figure business from a spare bedroom.

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1 comment
Paradigm Shifter says August 24, 2015

Read a great article the other day Derek by Peter Diamandis or maybe he forwarded it.

By the way I agree understanding lifetime value is ok.

This article said the most critical factor in exponential growth was nothing close to lifetime value, product, systems or lack of them, employee talent or anything else.

They cited companies like Instagram, ect remember how they grew?

They said the number one factor was….drumroll…..timing!!

I think they nailed it! You?

If Instagram started 20 years ago would it have worked? How about 20 years from now?

Then there are evergreen niches where particular individuals come and go after spending gobs of money they raised only to spend it as fast as they can. They raise more with only one intent, spend it before it’s too late.

Yeah this niche, none of the conventional rules really apply.

Between now and the end of 2016 these folks will raise and spend 5 billion dollars. More if they can raise it.

They will spend every dime, just depends on who they give it to.

I am working on them spending a boatload of it with me and then branded be the go to guy all the others go to first.

So if I am able to combine the right team at this, the right to time…..BAM….exponential growth.

I figure if I got a choice I would rather grow at an exponential pace instead of a snails.

How bout you Derek?


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